Economy & Finance
In a previous piece, I talked about taking your trade entry using the
second move of the correction if you trade pullbacks.
I am such a fan of this type of entry when the conditions are right that I
want to share a trade with you on the 6E from Nov 26.
This trade is a great lesson about close being close enough. What does that mean?
Let's get started on the review.....
First let's start with my trading chart setup. I had the 5 minute chart open plus a 1 minute chart shrunk so I can
still see the price action inside the formation of the 5 minute candle.
I also had a glance at the 30 minute chart before I started.
There were two important news releases at 8:30 EST and one at 10:00 EST.
Price rallied at the first news release and put in 30 points in about ten
minutes. You can see by the chart that after the bulls drove price up, sellers
started to step in.
The presence of sellers does not necessarily mean "bears" are taking over.It could simply be longs taking
profit through selling off their positions.
What that does however is entice contrarian traders and even those that
think they can pick highs and lows.
This next chart shows a few things:
Candle #1. Buyers brought price higher before sellers drove it to the lows. Buyers manage to step in and at least close it off the lows. I called it a draw.
Candle #2. The battle still rages but this time when buyers stepped in, they managed to close the candle closer to the highs. I gave the buyers the edge in this battle.
Candle #3. Sellers totally overwhelm the buyers. So this brought an end to the first leg of the correction of the move and now this trader goes on alert.
Drawing your attention to the dotted black line, some traders would see price returning to a former area of
resistance and think support. Buyers stepped in and rallied the market
about 12 points before reality set in.
Price slams against their positions and takes out stops where all the
textbooks tell you to place them - 1-2 points outside the lows.
Now is where and when we are looking for our second entry to enter
the trend to the upside.
Looking at this complex correction (2 or more legs), I would love to see both
corrective legs almost exactly the same length.
This next chart shows the black dotted lines on the chart showing the
complex correction that helps set up our entry on the second leg.
If it is close and the pattern "looks" the same, it will probably act the same as
the perfect setup. Close..is close enough and sets up a pain free and superb entry right off
the low of the correction.
The yellow is the one minute chart which allows us to see earlier than the
five minute chart the attempt to return to the upside. Close enough to
the closing of the 1 minute chart a market order is fired off.
Even though there is a pending news release at 10:00, nothing in the price
action gives an indication to get out of the trade. While not entering a trade
right before a release is a good practice, I usually won't close a
position before a release.
You can see that after the release, the market is still showing buying pressure as higher lows are printed up against the highs of a range.There is still no
price action that is showing too much of a threat of selling pressure taking
--- Some people may say that big news --- candle is a gift of profits so exit.
That's knee jerk trading that has no place if
trading consistently is your goal.
There was nothing about that price action or formed structure that screamed "EXIT"
Price busts over the high of the news release candle and this is where it gets
This next chart has the five minute chart overlaid on top of the one minute. You can see the reversal candle on the one minute clearly.
You can see via the five minute that after the breakout, price immediately starts to trade back into the breakout
This is NOT what I want to see to show strong buying pressure.
I want to see price be able to stay away from the zone and when pulling
back, not to do it in strong fashion.
Price pulls back immediately The one minute chart shows the strength of the selling pressure
After a final burst of buying pressure prints a doji, selling pressure prints a
clear bear candle.
Exiting is the only option and booking over a 30 point move.
As you can see, waiting for the second leg to complete and show signs of resuming the overall move can not
only save you a loss, but also get you in at a favorable time when those that
were washed out, rejoin the move.
If you missed my original post on trading second entries, you can find it
at the following link:
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