My post 432 was referring to chart above on post 431. I did not get to finish post 432 as I stopped and ate breakfast and now it won’t let me edit the post. So I will post over and add to the post.
Mar 28, 2020 at 11:19 AM for Price Action 3-26
Look at the chart again.
Gap up from the open. First reversal that appears to at first be strong will probably in fact be minor and fail.
11 bars up and really only two qualifying PB’s (for a 5 min TF marked... 1 and 2) and two minor implied PB’s marked Ipb1 and Ipb2. So I start adding (averaging down long) on the 12th bar and exit on the 13th bar, then resume averaging again in the 13th bar. Why?
1) Well it is a relatively large bull bar compared to all the bear bars at this point.
2) Every PB (actual and implied) are minor
3) Up to this point we have 7 large bull bars all closing above their midpoint.
4) There gaps between the high of a bar and the high of the previous and or the high two bars back. Selling pressure has been minimum.
5)price is above all three MA’s except for bars 3,4, and 5 since the open.
6) if you look at the prev PA back 42 bars or so from this 13th bar well price has broken above that high made.
Therefore, all signs point to strength in his opening rally. So, any PB appearing to be larger or appearing to be a reversal will likely be minor so I start averaging down on this 13th bar again after first locking in the profit from the averaged in trade on the 12th bar. Remember, I grab my profits as the market gives them to me. I generally do not let my profits run and cut my losses (except in certain cases). I lock in my profits and add to my losses. Counter intuitive, I know. Breaking the gurus’s rules, I know. But we are talking about scalping 1 to 8 points (and more in high volatility). And we are talking about being a trader that has developed the skill to read price action. Otherwise, averaging down can be dangerous to one’s account.
So, I am averaging down on the 13th bar (after locking in my profits from the previous averaged down trade). I draw horizontal lines on the chart (grey lines) to measure a 50% PB level from the low of the session to the high of the session up to this point. I am watching as price approaches that point. A 50% pb has alot of merit in intraday trading. I don’t use FIB numbers though. By the 16th bar we see price touching the 20 EMA but STILL above a 50% PB. I add my last contract to my long averaged down position. I am now 5 contract long and losing. The very next bar is a bull bar and we start heading back up. I look to exit my long once my first contract has made at least enough to cover commission on itself. Therefore, I exit on bar 22 without hesitation again locking in my profits.
I hope this brief explanation explains “why” I would average down twice in this context. While I am aware the explanation is hind site but the trading execution was live. My goal is to show “how” and “why” I take the kind of trades I take and I hope it provides a reasonable rationale. My profit up to this point in the session was $416.25 before commissions. Not too bad for MES and less than an hour of trading.
A word about losses. If price would have traded below 50% (in THIS context) and below IPb1 I would at that point been thinking of exiting my averaged down position with a loss and doubling up and going short. If held long thru Ipb1 I would be out by Pb1 no questions asked, as my premise is wrong. In the latter case I would then wait and see if price reverses back up around that bottom grey horizontal line, and if so, I would consider we are probably going to have a TR (trading range day) and I would look at getting in back long doubled up again at the bottom of the range. If it breaks below that grey line after my loss and continues south then I would double or triple up short. I would soon get my loss back and be in the money again.
*note: implied Pb means that on a smaller TF the chart would shows an ACTUAL Pb. An actual PB is when the low of a bar goes below the low of a previous bar, in this particular case of a bullish move. In a bearish move and actual PB would be when the high of a bar goes above the high of the previous bar.
In case you are wondering. I didn’t have time to take anymore trades on 3-26. Here is a chart of the entire session with volume added and showing my trades explained above.
