Trend Transitions.. Continued:
In the last article, I have talked about the trend transitions and importance of it in maintaining awareness on the context of the market. The last session in crude gave a nice example of that. Let’s see some charts from my yesterday’s trading session. They are self-explanatory.
First lets look at the naked TTF chart without any messy lines.
First things first. We have to add some HTF structural lines before going into the TTF trend structure assessment. The recent, the best. Here is the HTF, 30min. chart.
Now the trend assessment in the TTF chart after adding HTF structural boundaries. Remember, always start from the left during trend assessment in TTF. If you directly look at the right of the chart and conclude that the trend is up/down, you will miss some important context about the trend structure.
The trend transition that I have given in the inlet above is an ideal case. In real-time, you can blend it to suit the feel for the market, ie. that swing high after BPB and continuation after the SH is optional(better if it’s there). But a BPB and then continuation after the BPB is a must before concluding that the trend has transitioned.
What does that above analysis say?? Bias is down and I have to look for low-risk short entries. Simply put, once the bias is established, I am going to take weak pullbacks in the direction of the bias at the significant levels, and I fade the breakouts against the bias (BOF) until that bias is valid on a suitable risk to reward, and then manage them accordingly.
These are the trades that I have taken.
Let me ask a question before concluding this article. Did the above charts have any missed trades??
You can say yes as there was a good long trade that started at range support and ended at point B. But my answer is no. According to me, only the moves in the direction of my bias without me, that provided an entry opportunity at a significant level is a missed trade. Otherwise, I let the market go without me as I hate chasing. My trade plan doesn’t allow me to chase that upside spike and hence it is not a missed trade for me. I will end up in missing great trades in the direction of my bias if I keep on chasing the trades that are not in accordance with my trade plan. Once the overextension is confirmed, there is no question of missed long entries.
Enough said. Now lets look at what I have learnt from this trade sequence.
I have learnt some lessons from this trade sequence. Here are they.
Trades between A and B are against strength. Just because I have a bias doesn’t mean that I should initiate trades on stalls. I must have a level, weakness, exhaustion before initiating a trade even though the bias is strong.
Passive trade management is not for me. I screwed up the trade management of the trade taken at D by managing it passively. I would have got an extra 80ticks if I did manage it actively as there were a scratch and reentry opportunity for that trade.
Trading is not about having predetermined rules and making money applying them. It is about training our eyes and mind to understand the language of markets by tuning them to maintain a feel for the order flow. It is a journey that gets better and better when we focus on the procedure rather than on money and profits.
Wow, Awesome. So, if the market had not given any PB and continued moving upwards (with very shallow Pullbacks somewhere in the middle), you would still not have considered being an UpTrend??
You would still be searching for Short Entries??
It happens many times in Nifty that the market breaks out of the range and goes up 50-60 points, then it gives a shallow PB (Not the PB up to the RangeHigh that it broke). So, in such scenarios, you keep looking for Short Entries???
A healthy breakout tests the broken out region before continuing up/down. If it didn’t, it means that there is some hurry (euphoria in upside breakout/panic in downside breakout) in that move, which we call as overextension or climatic move. The market will not sustain these emotions long and it most likely reverses when bombarded with a level that can absorb the late entries, HTF S/R as per YTC. Once the price is not willing to move beyond that level, those who entered in a hurry will look to take quick profits that will create the necessary initial push which again sets up some panic in the late entries. I like to enter when they exit targeting the broken out region. because moves made my euphoria/ panic gives pretty quick profits most of the time, like the one published in this article.
But remember, fade overextended move only at the HTF S/R, manage them aggressively until stop reaches breakeven and look to scratch if immediate strength is not shown.
Regarding the question, you have asked about Nifty, Yes. I look to fade at the HTF S/R, Pullback entries after the overextension before giving a BPB are aggressive trades. Taking them or not taking them depends on the space between the pullback entry-level and the immediate HTF S/R, the risk to reward on the first target and the weakness in the pullback. If the pullback is slightly stronger, then I pass on that trade, I look to take quick profits with limit exits instead of letting it for a runner trade is taken.
Remember, BPB can also happen in LTF. We must not ignore that before making conclusions on overextensions
I used to be in the opposite direction to you :).
I used to take long at the first PB after a big BO from range high.
But, now I will be extra careful in those trades, knowing well that I am trading against professionals.
Revies few charts which didn’t give BPB but continued till the structural S/R. You will get the necessary confidence to fade those moves on weakness by looking at the results of that review. I am sure you are aware of the statistics that about 70% of the breakouts fail. So, we must be very careful while making trades in the direction of the breakout and do that only when the entry is at a nice level with limited initial risk.
All the best with your trading…
Great article with good value. There are thousands of articles regarding trend, but this is the first one I read about trend transition. Thank you very much. And truly you are inspiring me a lot to think trading as a “way of life” rather than a profession or a means for living.
Thanks for your appreciating words. Actually, that’s the mission of this blog. To present trading in a different way than that is presented in books…
Trading played a very crucial role in shaping up my life and I am trying to present the same through this blog. Good to see that it resonated in one of the readers.
You have good time frame combinations for trading. Don’t you feel pressure when you are stopped out on 2-3 continuous trades & more over next 1-2 trades comes up with Break-even? How do you manage your emotions & discipline when you face such conditions. Almost a little worse than what happened yesterday with you? I would like to hear your views/remarks on this one.
Two full stop hits, I will go away from the computer to perform my refresh and recoup procedures. Basically, I don’t feel bad when I manage the bad trades I have picked for a breakeven or a lesser loss than the initial risk. But if I am getting a lot of breakeven trades in a sequence, fighting the direction that the market is moving, I will take a break for the entire session as it shows that there is something wrong with my assessment of market action. I will be lying if I say that I don’t feel emotions in my trading. But I try my best to not let them affect my decision making. Emotions are a part of trading and I guess no one can avoid them completely.