Let me to show a few concepts. Exact entries are made with the best intentions but are actually hard to pull off live. Even after back testing. Here is an example on a SIM taken this morning to illustrate that concept and a few others.
IN MES or Es for that matter we will look at 2 charts. A 5 and a 1 min. The latter shows what was taking place in the former.
Look at the first trade to the left. Downtrend from 8:45 a.m. OK say see the bar where 4 entries short were made? The first entry was made at the bottom of the bull doji bar. However, at the time it was made it was a bear bar appearing to continue the trend of the previous bear bar. So I take an initial short. It goes against me. I add again a second short entry. Why? Look at the context from 8:45. It is bearish. I am betting this is not a reversal but simply bulls pushing back i.e. the other political party winning for a but ROFLMAO. It continues against me on that bull doji. I add again for a third entry short. Right at the close of that bull doji I add for a fourth time, again short. I see the close of that doji and I take note it is below the high of the previous bar. That is GOOD for my averaged down position because while the bulls are trying to reverse the trend from 8:45 they could not even push the price above the previous bear bar. The previous bear bar is a smaller trend on a say a 1 min chart. They couldn't even get it above the smaller trend much less the large trend from 8:45. So now it is a matter of waiting. I am short 4 entries. Averaged down and the guru's (the average down never gurus) are screaming NO NO NO. By bar 10:20 I have a profit on my last 3 entries and I am losing a little on my first entry still. But I could have exited right there with a profit. I chose not too. BY bar 10:50 I could have exited with an even bigger profit but still chose to hold. A PB occurs starting on that same 1:50 bar. So I now have to endure some drawn down. The (never average down gurus' are hysterical with joy..we told you so!!!!)
Now observe, that by bar 10:50 and 11:00 we can see we are accumulating a lot of sideways motion. Still not quite enough to label it a range (I like to see 20 bars for that) but it is enough to label it a protracted PB of the 8:45 trend. Further more, the bars are overlapping. Up then down then up then down. I am in money I am out of money. This is typical of a trend that is evolving into a range. As a scalper I can make a decision. I had two opportunities to exit with profit on 3 of my entries and lose a little on my initial entry. I see clearly- sideways behavior. Bulls and bears are fighting it out. Bears want the 8:45 trend to continue. Bulls want a reversal. It could resume the 8:45 trend down or it could keep going and morph into an actual range (20 bars sideways). So what do I do?
Well as a scalper I just decide to add another entry short near the top of the sideways move (which I do on bar 11:10 so now I am short 5 entries) and then try and get out on at least 4 of the entries with a profit on a subsequent move down, towards the bottom of the sideways action. I may BE or lose a little on the initial entry, but that is OK.. The move down towards the bottom of the sideways action gives me profit on 4 so So I decide to "grab" them profits and lock them in which I do on bar 11:20.
Ok it may go on down but if it does I can enter short again but I have locked in some profit on 4 entries and lost a little on my initial entry. So I wipe my sweating palms...calm my palpitating heart...and await another entry while the "never average down gurus" are crying a tear in their beer cause they got stopped out. Look, the odds slightly favor that the trend will continue down from this sideway PA but once we get 20 bars sideways those odds are about even 45/55 that a BE can be north or south respectively. But I decide to get greedy and "grab" them profits and see what happens afterwards and at the same time make the brokers happy (they call their wife and tell them "get the grill ready for bonafide angus ribeyes tonight.")
So, all this yapping above to explain and show how precise entries in real trading are an illusion (since none of us really know what the market will do, 100%, that is) but to also illustrate there is a way to mitigate early entries or even mistaken entries.
So now on to some other concepts. Look carefully at the 5 min chart and in particular the bar where the 4 entries averaged down were made. Notice the close. It is below the previous bear bar. This is called an implied PB. To use Mr Brooks terminology. Maybe he won't get mad? I do try and encourage folks to take a look at his materials. Only because I think the man knows how to trade and his take on trading PA is very useful (although it takes a long time to learn and gobs of practice). Ok back to an implied PB.
First, of what is a regular or actual PB? Well it is when the high or low of a bar goes above high of the previous bar or below the low of the previous bar. Now look at the bar with 4 short entries. It closed with NO actual PB. However, a PB did take place. How do we know this? OK the market goes down then back up and closes well above it's midpoint forming what could be labeled as a doji but it's high never went above the previous bar. What is a doji or rather what does it mean? It generally is a 1 bar trading range depicting that bulls and bears are about equal in the pressures they are exerting on the market. In this case it is a bull doji so on THIS particular doji bar the bulls are slightly stronger. But we must not forget the context...namely that bear trend from 8:45 plus the continuation of said trend on the previous bar.
"In a bear trend a doji or even a bull bar (whether doji or not) that does not go above the high of the precious bar is an implied PB"
Take a picture of that..clik...clik now it is in your mind.
So, what is an implied PB. In this case it is a bull doji (small body) that closes above it's midpoint and it's low and it's open, BUT below the low of the previous bar. Why is it implied? Well it is not an actual PB on the 5 min chart. BUT...BUT...but...dial down to a 1 min or a 2 min chart (which I have graciously provided and you will see in the circle that it is actually a bonafide PB on the smaller TF.
I also show on the 5 min an actual PB on that TF and how it is a deeper PB on the 1 min TF. Now look at the third circle. Is it an implied PB? It certainly is and it is taking place near the top of the sideways move. So right after it's close I am (Johnny on the spot) and add another short entry. That is I average down again! The gurus (never averagers) are having heart attacks. I figure the odds really favor another move down to where I can exit my averaged down 5 entry trade. Which I do on bar 11:20. I wipe the sweat from my palms...maybe get me a beer..or go for a walk while the gurus are all confused and have their tears falling in their beers...bang..stopped out....wracking up another loss...all because they wouldn't average down and won't grab profits when they can in a sideways move.
Enjoy my little story. Better practice it on a SIM.
