I want to now post a chart of todays price action. And show a technique I use when trading BO's when the market is in the larger BO phase of the cycle. This is not the same as trading BO points so don't get confused about it. However, it can be used in trading any successful BO, not just phase BO's. But it is NOT the same as trading BO points in my recent previous posts. Those techniques were simply capitalizing on price probing by institutions. And remember those techniques are used in broad channels or ranges. However, in successful BO's I am betting on BO continuation. Hope that is clear.
OK, first the larger contexts. That is, what the phase of the market cycle? From the far left of the chart until bar 8:20 we see the market cycle is sideways or in a range and has been for several hours. On bar 8:25 an up move starts. RTH's open at 8:30 Chicago time and price begins what looks like a possible BO of the range. By bar 8:45 ..a large bull bar closing on it's high and higher than all the bars to the left makes it apparent that strong buying is taking place. Institutions are buying. We get a small implied PB on bar 8:50. Look back several of my posts to learn about implied PB's. They are simply an actual PB on a smaller TF. The intermediate context here (a trend BO..which is a chart pattern) and the more immediate context i.e. strong bull bar closing near its high followed by an implied PB. So, it is appearing that we are heading into a BO phase of the cycle.
By the next bar 8:55 this is a FT (follow through) bull bar enough to convince me we are in the BO phase of the market cycle so I begin to trade it as such. I took 4 trades. All winners. This is a technique I like to use in strong BO's, especially, when it is a BO of the market cycle. I will trade in the direction of the BO using a wide SL and add to the position, if price moves against me. Then I will exit once price continues the BO direction and price action gets my first entry into the money. If it is especially strong after my first entry is in the money I will even let it run a bit more before locking in profits. Once I lock in the profits I repeat the process over and over. Why not just hold and let it run reducing commission costs? Because BO's can have deep PB's. And often will have strong reversals. I just prefer working price in increments as price is moving, locking in the profits in case we see a deep PB or reversal. I will do this over and over. Plus my brokers get to eat ribeye steak instead of bologna sandwiches (aka as round steak) ROFLMAO. So they are happy and me too as I am locking in profits. I will trade it this way until the BO goes into a channel phase or into a range phase skipping the channel phase. However, it actually went into the channel phase on bar 9:05 with the first ACTUAL PB of the BO on this 5 minute chart.
I don't know how far the channel will go but eventually we likely see a range or some sideways action as bull take profits. But I quit trading here so I could type. As long as it is a strong BO even if in the channel mode (as in a steep channel) I will trade it more like a continuation of the BO. If the channel broadens before getting into a range then at that point I will use channel trading techniques. All my trades on this chart were using BO techniques.
As you can see I will, over and over, average down on PB's (implied or actual) and exit on surges in the direction of the BO locking in profits. I do this over and over keeping a wide SL in the event of a deep PB. If a PB gets over 70% of the previous (in this case bull move) then I will dump the position and entertain the idea that a reversal may be starting and I may need to double and go in the direction of the reversal, getting back any loss quickly, and soon be back in the money.
I think the chart with the entries and exits is pretty self explanatory. This is basically momentum trading in BO's locking in profits. Should there be a reversal or deep PB any loss will be less because profits already made will somewhat offset them. Another alternative is just use a trailing SL and ride the momentum. That too is ok but not my preference. I am a scalper and I like scalping and will grab my profits, as the market hands them to me. If it keeps giving them, I keep grabbing. Brokers are happy. I am happy. Those shorting (in this case) are unhappy.
I like trading BO's this way because it gives me the opportunity to compound. That is, I am locking in profits on a price move north (in this case) then exiting with a profit followed by another entry again at a better price when the market pull back from my previous higher exit. Thus in essence, I am sort of compounding by using the profits made in the previous trade to make more profits. More $$ can be made doing this than just holding with a trailing stop as price runs. J.M. Hurst talks about this in his book. "The Profit Magic of Stock Market Transaction Timing. It only sells for around $900.00 dollars on amazon! ROFLMAO. I paid way way way less, years ago. Anyway, he proves that by many entries and exits, more money is made than holding and riding the wave, or momentum. He convinced me years ago and well... it suits my love of scalping 1 to 8 points in the ES, over and over, locking in profits, and compounding while at the same time keeping the brokers eating ribeye steak. Win win all the way around!
I got to go work in el garden but will check later and see what phase the market morphed into after my last trade. I have not checked yet and here it is 12:25 as I was typing most of the morning then eating breakfast so as to have some energy for my gardening. Maybe will post another chart later on describing the phases that evolved but I doubt any more trading today for myself.
