Watch that 20 ema in bear channels. When price action is floating around in the middle area of the channel you put more odds in your favor to start short on PB to the 20 ema as opposed to shorting on the low of a large bear bar such as where you have your red arrow. While a wider stop loss would have kept you in the trade until the drop down 6 bars later to the bottom of the channel your tolerance for such a wide SL is not palatable. Therefore, to increase your odds of success on a 1 contract you need to take trades when a pullback is close to the 20 EMA when both are running in the middle of the channel if that is where you are going to initiate the trade. So, it I were to trade a one contract no averaging down trade on the BO from the nested sideways range I would try and get in on a PB to the ema. In this case that would be at the DT (or call it triple top if you like) in the PB which is about where my red dot is but 5 bars to the right.
It is easy in the heat of trading to overlook the EMA but remember it is an “ average” and gives you a good sense of where traders are valuing the market at for the moment. So in a bearish phase like a bear channel short entries on PB to the ema are just simply increasing your odds of a successful trade. Whether that ema is at the top or in middle of the channel. Watch the slope of the ema that shows the aggressiveness of price weakness. Pretty steep in this case.
ok let me throw a wrench in the gears. BO of range (yellow lines) on your big red bear bar closing on it’s low. That Top of that BO point, which is the bottom of the range, is also right at the ema. By the time that red bar closes and you Short (your red arrow) the move down has been several points. So, if I had shorted at your arrow (for fear of missing out LOL) I would have to be prepared to average down on any PB back towards the EMA even if the PB was on the same red bar back towards my red dot or 5 bars later. See what I mean? Otherwise, I would have to have a wider SL if I am not gonna average down or I am just gonna get whipsawed out of the market. Or I gotta to wait for a PB near the ema to take my 1 contract trade. The problem with the latter is WHAT IF there is no PB from your red arrow entry point but price just shoots on down to the bottom of the range without you on board. And it could have!
So bottom line, if you are trading 1 contract and have a small set fixed point SL as opposed to a price action SL then you need to wait for a PB from that red arrow entry whether it be on the same bar after the low is made on the red bar or an pb like 5 bars later, before executing your entry. I don’t want to complicate matters but you have to take the play that favors your risk tolerance, while understanding that if there is no PB, from the close of that red bar where your arrow is, then you will just miss out on the trade.
You have to look at it this way. Bear channel. Pretty steep bear EMA. BO south of a nested range. BO point just above the middle of the range. BO bar is big bear bar closing near it’s low. What are the odds that price will trade into the lower half of the range BEFORE it would trade up to the upper half? Pretty high odds. But even at that there is a 40% chance price will stop dead on that red bar and turn up. But the higher odds favor south into the lower half of the channel. BUT YOU HAVE TO BE PREPARED FOR EITHER SCENARIO UNFOLDING. But of course you want to play the higher odds play.
As concerns averaging down I would have no problem moving my initial SL and averaging down short all the way thru the 20 EMA even all the way up to the top of the channel. Why? 75% to 80% of BO attempts out of the top of a fairly steep bear channel WILL fail and price will go back into the channel at least enough for a good scalp. On the other hand a bear channel on 5 min TF is likely just A PB in the form of a bull flag on a 15, 30, 60 min TF if the flag was made on a bull trend on the higher time frames. The likely resolution of a bull flag is what? UP! That is, the Bull trend resumes on the higher TF. So, in this bear channel on the 5 min TF, if price a breaks out of the top, puts a couple or three of bars with lows above the top of the channel, and especially has a PB that holds above the top of the channel (bo point) AND price is riding above the EMA then I am dumping my averaged in position followed by doubling or tripling up and going long.
