More great things from the comment section!
Why do you disregard ‘the trend’ when swing trading? Is not always better to ‘trade with the trend’?
I may have used the wrong term however before that, what is the trend?
The trend direction is going to depend on a few things:
- What time frame are you referring to?
- How are you determining the trend?
It is possible to have what appears as a down trend on the daily chart using lower highs and lower lows but on the weekly, that trend is up with higher highs and lows.
You can have a price pattern trend determination but someone using a moving average will have a different view of trend.
Now, I certainly advocate trading with the trend as generally counter trend will have limited potential. But that does not discount the viability of trades counter to a trend determination in some instances.
A good example this week is the AUDUSD.
Given the daily chart at this point in time, I’d want a short in this currency. The action, as looked at the weekend was bearish and needed to see further weakness to validate a short (I wrote that on the chart).
Flip to the weekly chart, price is making higher highs and lows which is opposite of the daily chart. Price was also pulling back into an up-sloping trend line.
Also keep in mind that price did not continue with momentum to the downside after the “support” break and that in itself calls a short into question. That is exactly why I wrote needing to see further weakness.
I’ve written before that if price fails to do something, that is something to take notice of.
If price would have given me a setup such as the failure test of lows on the daily chart that I use a lot, I would have been part of the run in the AUDUSD the last several days.
Having strict criteria keeps you from doing something stupid. Traders may have jumped into the AUDUSD move based on strong price movement alone (emotional trading) but it only takes one bad one to ruin you.
What I should have done (but didn’t due to being in other positions), was watch price on the lower time frame – the four hour chart. There is a double bottom formation that would have lead into the run which is another price action entry.
Why would I watch the four hour if I wanted weakness? Absence of weakness does not always mean strength in the opposite direction but it’s a sign that something has changed.
Let’s look at the context:
- Daily down trend via price action measure
- Price broke from consolidation without much follow through even though those were momentum candlesticks
- Weekly chart is higher highs and lows
Looking for weakness was not the wrong play – but also being open to strength is not contradictory. It all depends on what price does.
When you set your take profit target in a trade, do you consider the S/R or R:R or both depending on which one is nearer to the entry point.
Great question. I will scale out at 1R anywhere from 1/4 to 1/3 of the position. If 1R is just beyond a pivot, I will bring the target in. If the 1R would be too far around a pivot, I will either put the trade on with live with it or skip the trade. I don’t mind missing trades even if they rocket in the direction I was considering.
Risk manager first. That is your job.
I was referring to the price rejection in the .6800 area, upon further review and recent price action this is in fact not a triple top just minor resistance. Thanks again and I look further to future articles and potential set ups.
What’s great about what you wrote is there is thought put into it. That also tells me you consider the trend in your trading determination. Keep in mind that you want to keep things as simple as possible.
Double or triple tops would need a break of the support level to validate it. We can NEVER know with 100% certainty what price will do.
The other thing that may have prevented a short trade was after the momentum move on Nov 17, price ranged. It really wasn’t until the basing under support that started around Dec 6 that, simply looking at price, would have had you taking shorts off the table.
If you were to short any of the range highs that may have proven themselves out in your testing, it would not have been a wrong trade.
Most traders don’t have a trading plan. They just go by gut. While there can be merit in intuition (which happens after staring at 1000’s of charts over the years) it makes it hard to be disciplined.
Trading Is Not About Being Right Or Wrong
I’ve had a few people pipe up and say “you’re wrong” in the comments. Notwithstanding what eventually happened, trading is not about right and wrong. I’ve also not received any charts from these people showing setups before they happen although they’ve been invited to.
Trading is testing out a trading strategy that shows to have an edge (slight as it may be) and using that strategy over and over again.
The AUDUSD, to pick on it again, is a great example. I missed the move up. But did I?
I stuck to a plan that says I would need a sign to show some type of exhaustion or change of state to take a move counter to what I determine is the trend.
Sticking to plans and constantly improving upon it, is how I’ve lasted the years I have.
Some of these setups I post every week may not work out and that’s fine. Over the long term though, some setups have a trigger and though some lose, many go onto make a decent amount of pip.
Factor in position sizing and using volatility as a means to manage the trade……things are working out just fine.