Quote from 1a2b3cppp:
The best places to go long and short are obviously at each high and low. Since you said I could do this in hindsight, I have labeled each buy and short entry with a green and red circle.
As I said earlier, I cannot identify them in real time.
We can never be certain in real time whether a particular price bar will print what eventually becomes a swing high or low. But we can identify the price action patterns that indicate a greater likelihood of a level holding as S/R or breaking out further.
On this chart, you noted a low, followed by a high. The low is not identifiable as a swing low until two or three subsequent bars close; the high is not identifiable as a high until two or three subsequent bars close. But you can assume the risk based on positive expectancy price action patterns and reap the reward more often than not.
Once that high printed and then pulled back, Iâd expect the previous range high that broke out to hold as support. If buyers stepped in there and were able to push price beyond a previous 5-min bar high (excluding inside bars), then itâs likely the previous swing high will be at least tested if not exceeded.
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There are two ways to play the pullback to the range high as new support: Anticipate that it will become support and place a limit order at the range high with a stop below the range low, or place a buy stop above a previous 5-min bar high IF the range high price is touched and appears to hold as support (again, I exclude inside bars) with a stop below the bar that breaks upside. If using a limit order, youâre filled during what looks like the 9:30 bar and take a small loss. If using a stop order, no trade is triggered.
So the limit-filled long looked promising for a moment, but the break of the inside bar produced no follow through and the range breaks downside with some conviction.
Technically, Iâd now expect the range low to hold as resistance. Again, two ways to play this, either placing a limit to sell the previous range low that broke down, or sell stop just below previous 5-min bar low IF the range low price is touched. The bar where your red dot marks LH touches the range low, and either your limit is filled or your stop is triggered on the next bar. How you manage that one is up to you. I personally would bail for a scratch after the weak break of the first LL you marked, although holding with the initial stop loss in place keeps you in a fine short trade.
So thatâs how, without knowing in real time whether or not a price will become a LH or HL, you can take a leap of faith that technical levels will hold and subsequent price behavior will trigger a profitable move more often than not, which is what positive expectancy is all about.
