It's the Pattern, Stupid!
- Thread starter schizo
- Start date
Nope, it meant 'bedtime'.
I prefer to cut losers quickly, so in the pattern shown, if price appeared to find resistance at that previous support level, I won't give it much more room than that. If price started back down off that E level and then turned back up through the level at E, I would expect shorts' stops to trigger covering and potential sellers still on the sidelines would wait for a higher price, resulting in a likely price move back up to, and possibly through, the high at C.
One of the best concepts I learned from Al Brooks is to take advantage of counter-trend traders stops. I've often seen posts on ET about people not knowing how to enter in a strong trend. In fact it's really easy. Let's say there's a strong up trend as seen on a 5-min chart, very shallow pullbacks, usually seen only on the 1-min chart. Just trail a limit order to buy one tick below the low of each 1-min bar up-trending bar. It feels really counter-intuitive in real time because it feels like that's a sign the trend is reversing and 1-min amateurs think they're catching the reversal near the high with very low risk. In fact, their stops above the high add that little extra oomph to the profits.
Nice sweater!!
Re flags - do you need to see volume decrease on the flag to trade it? Or does that not really affect the win rate in your own experience? And regarding the exit, are you generally looking for a fixed target, or do you try to use it as a low risk entry to catch a larger move? Or maybe you use price action to determine your exit?
Yes, the volume must decrease. By how much it should decrease is one of those trade secrets that have been handed down by fathers to sons for centuries. You may enjoy researching such this weekend!
While the classic minimum measurement rule does work out most often, the price movement will usually tell you when the move has come to an end.
F1 is a textbook example. F2 is a pennant, which is a close relative of the flag. One beauty of the flag is that in the few cases where it doesn't work out it almost always gives you early warning as can be seen in F3. You can also try and figure out what that is over the weekend!
"A flag a day keeps the bill collector away!!".
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If you ask me, insider information is the absolute best!It's the order flow stupid.
Nodoji, what do you consider a small stop? Also, are you letting your trade ride when you trade that setup?
I like to see more conformation at E before I take a trade... I'm just trying to figure out your thought process..
Thanks for clarifying. I remembered steveh mentioning that you do like to chop off the potential losers super quick and macattack saying how you can come out slightly ahead while he is taking full losses on the same set of losing trades. This habit of cutting losses quickly - did it come by naturally or was it something you had to develop as a habit or reflex?
I was wondering if you could explain something else as well. You mentioned that the best trading strategy is trading in the direction of the trend when the trend is already well on its way and yet one of your favourite pattern is a reversal pattern (which is kind of picking tops and bottoms and something you which do not recommend?). Can you help me understand the "apparent" contradiction between the two? After reading almost all your posts from the last six years, this is something that I still don't understand.
Hi learner2007,
Do you trade the breakout or the pullback? If you trade the pullback, can't you trade all three since they all pull back to the breakout point? Or am I missing something obvious?
Thanks.