Trading Trends.. Summary…
Keep It Simple And Stupid… Trading (especially day-trading) is a stressful activity and no matter how good and emotionally stable you are, you will be forced to onboard the emotional roller coaster in some situations. I need not emphasize much on what emotions can do as you already got some experience with them in your trading career. The root causes of those emotions can be many. But we can put them all into a single box, “Not accepting the risk and Not having the right expectations”. The consequences of emotions can be many. But again we can put them into a single box, “Perception distortion”. You might have the world’s best trading strategy, but when you don’t accept the risk and you don’t carry the right expectations, you can’t see the market the way it is. That’s the situation where you find the beauty of having a trading plan that’s simple and effective. If your trade plan itself is complex with a dozen indicators, you freak out. But when it is simple, you can easily get back to step one of the plans and start again.
There are two golden rules if you wanna play the game of trading defensively.
The first one is,
Once you have a clearly defined trend (cycle method), say no to counter-trend trades when the market is trading within the structural framework boundaries. Think about them only at HTF S/R levels that too when the trend is weak.
How to define those levels? I have already written an article about that long back, but I would like to talk about the process I am following now in the next article as I want to focus on trading pullbacks here.
The second one is,
Never fade strength (impulsive swing) no matter how strong the trend looks. Always wait for a corrective move against the trend to time an entry in the direction of the trend.
Trading Trends.. Step by Step Procedure :-
Define the trend.
Make sure the first leg is impulsive, and there is price acceptance after breaking the swing high for uptrend or swing low for a downtrend. More about acceptance and non-acceptance in future articles.
Wait for a signal candle against the trade in TTF.
You don’t have any business with the charts until you see a signal candle against the trend as we don’t enter in the middle of an impulsive swing. In an uptrend, a red candle is a signal candle against the trend. In a downtrend, a green candle is a signal candle. Don’t break your head questioning whether this is a signal candle or not. Just consider the one that has the opposite colour of the trend.
Wait for the trigger candle and see how it closes in TTF.
Once you have a signal candle, you can determine the LWP. A trigger candle is the one that breaks the LWP. If the trigger candle fails to close beyond LWP, that’s a good sign as we want weakness against the trend to look for a with trend trade.
Confirm that the swing started against the trend is corrective.
So many characteristics for corrective swings. So let me give two things that I look for,
a) If a candle closes within LWP and the other extreme of the signal candle after breaking LWP of the swing (any candle in the swing), it’s a corrective swing.
b) Wait for two attempt failures. Let us say that the trend is down and you are looking at a rally, and there is no candle closed below the LWP of the swing, then I wait for two candles that break the high of the previous candle(s) but closes below that high to call it a corrective move, of course with a decelerating momentum.
Mark the supply/demand level using LTF and wait for the market to reach there to time the entry.
If the entry is with a limit order, the candle that you have entered must turn into a signal candle or a trigger candle. If the candle closes against the trade after the entry instead of turning into a signal candle, better to scratch and reenter rather than hoping for something to happen.
Repeat the above over and over again until one of the following things happen,
Breaking trend violation pivot and price acceptance beyond TVP,
Breakout of HTF S/R level.
Once price breaks an HTF S/R level, we need to see price acceptance beyond that level to take a with trend trade. More about it in the coming articles.
Rejections from new highs and new lows…
For example, the uptrend is healthy as far as there is price acceptance after breaking the swing highs. The downtrend is healthy as far as there is price acceptance after breaking the swing lows. If a price is not accepted, that is a sign of weak trend and that makes sense to wait for a CPB or a trap type entry, rather than a single leg pullback.