Quote from NoDoji:
...An example of a trade I took yesterday demonstrating these concepts:
Following the positive NFP report, price spiked up, then sold off pretty solidly, breaking both the trend line and the 20-bar EMA (what Bighog calls the double-cross move). Price broke one previous support level, but found firm support at the support level just prior to the pre-market ascending triangle (7:30-8:00am ET) breakout.
So in the 15 mins from the NYMEX open, price is in a very ugly range, but finding buyers at every touch to the 102.70-102.80 zone. Price closed just below the 20 EMA a couple times. Earlier triangle congestion becomes support in a clear pre-market uptrend.
The R:R of a short break of 102.75 is negative: there's internal double bottom support @ 102.60 and buyers will likely give that a good test, and a 20-tick stop is likely not survivable due to the volatility lately.
The R:R of a long break of 103.07 (9:15 ET bar high) is excellent: the previous high is 50 ticks away and a break of 103.07 is already a break of previous 103.01 support becoming resistance, so that bearish scenario is out of the way.
I want to go long a break of 103.07, but I also want to enter with a more clearly defined stop zone, not too keen on a 34-tick stop below 102.75. So I wait for the initial break, now watching the 1-min chart for a more precise entry.
Price breaks 103.07 very weakly, then pulls back a little, but only to 102.93, leaving a 1-min bar with a high of 103.07. Perfect second mouse entry setup! I place my order to go long @ 103.08 and my protective stop @ 102.92, well within my 20-tick max stop parameter. I'm slipped into the trade @ 103.09 with no plan to take profit until a) a reversal signal appears or b) price either breaks the previous high or finds resistance just prior to the previous high. There's a key level @ 103.49, the high of the bar just after high was hit. There could be a lot sellers waiting to put on a low-risk short there with a very tight stop, driving price back down off a lower high which could then attract more sellers.
My management strategy is to wait for around 20 ticks profit before moving my stop to b/e, then to tighten my stop considerably as price nears 103.49, expecting momentum to break out the high, or sellers pouncing just before the test of the high. If price hadn't sold off so hard post-NYMEX and hung out below the 20-EMA for so long, I'd consider a breakout of the high to be a no-brainer, but I'll exercise more caution in this instance.
So I'm long @ 103.09 and price immediately moves a few ticks my way, then pulls back. This is a normal wiggle that you don't see when you look at the static 5-min chart. But reality is that price wiggles, showing you green, then almost always showing you red again before continuing (except on pure breakouts). A break of 103.24 is key and once that breaks, I move my stop to b/e.
Price again wiggles here. This is where nervous traders grab their 15-20 ticks, call it a trade, then whine when it runs further without them.
But there are key levels still cleanly in play and no reversal signal. We have 103.40, 103.49 and then the high.
103.40 breaks straight to 103.49 and sure enough, the sellers jump on it. I decide to lock in 30 ticks profit because price couldn't even break 103.49 by a tick. I'll look to re-enter long at 103.50 for the break, but that doesn't happen and I end up shorting 103.25 for, at minimum, a scalp down to the 20-EMA, maybe more.
If you look at the 1-min chart between 9:36 and 9:39am ET, you'll see how much price wiggles following the 103.26 bar break entry. It dips a few ticks, moves back up to .33 but doesn't hit my .41 stop, back down to .16, then up to .27 (where I'd be shaken out if I moved my stop already), then right on through the 20-EMA where I then tighten my stop to lock in my 20 ticks in case 102.93 fails to break.
