November 28, 2016 Lesson
Today I am giving you 2 examples of trade entry processes. The first is a trend continuation breakout from early this AM in Crude Futures. As the market breaks to make new highs, notice how I use the Value Area as my entry and stop guidance. It produces fairly large initial risk for the trade (at least for me) which is common. I always find breakouts harder to hold with a tiny stop. That’s why it’s incredibly important to make sure you have a real spread to your first target. Many people buy breakouts with no idea how far they are likely to go… Bad idea because in this case – I needed at least 20 ticks more out of the market just to make 2:1 on the risk. So always make sure you are looking up and out for transitions to use as initial target points. The trend is only your friend if it continues…
I intentionally cut the first lesson short – so no need to report it back to me as an error. The lesson is the entry and the risk management, not trade performance… Getting a lot of people more worried about the end result rather than learning something.
Lesson 2 is a pullback transition. This is useful when the market is potentially changing direction – so a reversal instead of a trend. You’ll find I spend more time focusing on this type of trade. The reason? Risk. It’s much easier to trade with the small risk required for turns like this. Smaller risk means closer targets – and obviously it’s much easier to get 12-18 ticks out of Crude than it is to get 20-40 without a violent move taking you out.
Make sure to pay attention when I’m discussing why this was a good opportunity for a reversal. All morning we were testing turns off key levels. There’s a big difference between timing a turn and shorting every pullback you see.
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