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Trading Lesson- Why the Struggle for Many Lasts – Jan 2, 2022


Trading is straightforward and convoluted – simple and complex – obvious and obfuscated. And for these reasons, many of us struggle with knowing what to do and when to do it – and continue this in a consistent manner over a long period of time. It is a struggle that we battle daily.

In the new year ahead, with so many changes here and the work to create automated aids to help us with the battle of decisions we face daily. Every trader misses the mark, makes mistakes, loses concentration, acts impulsively, makes emotional decisions bringing us to face loss and discouragement.

So here is where we start – first, we must make sure that our strategies are robust. Doesn’t matter how much confidence you have in yourself. With a failing strategy, it still means that we end up with a portfolio and trends downward.

So we work to tweak those weekly by observing the market and watching the traders execute their trades and reveal their narrative. It is the narrative that uncovers what trades have the highest probability of success and if we happen to decide in the wrong direction, we know that turning around and following the right direction will give us what we need.

Today’s lesson in pictures is based on last week’s motion in the ES_F-

Wide-angle first – please read the notes on the images. They will matter.


On the wide-angle, let’s go through the choices -the highest probability choice is the long trade off the support region near 4770. Why? Because the traders have positioned themselves in a bullish environment -momentum and trend will be the simple observations we will use

  1. I buy the current level at 4775 ( 7pm eastern) with the idea that the chart is moving back into its old highs of 4789 and potentially higher. We are going to assume that we are watching the chart. I need to find the risk exposure – that will be line line that tells me I am essentially incorrect choosing the long side of the trade. I am going to use the low of the current candle at 4770 at support. This assumes around a 5 point risk event – so $250 per contract.
  2. If I am unwilling to accept this risk, I can do three things – a) I don’t take the trade, b) I take a smaller position than normal or c) I wait for a fade closer to support so that I can take the trade with less risk.
  3. Once I decide to engage, I find my targets – the first resistance level is 4784 then 4789 then 4794. Again, we have the choice of entry in and then out at the first target, or stairstep to the second or third target and beyond
  4. Outcomes possible – a) the trade stops out, b) the trade hits the first target, c) the trade hits higher targets. Once we see what the trade has as possible outcomes, we have the entire structure before us.

Let’s say that instead of holding higher, as we expect – the trade reverses. How will our decisions be altered here once a break above 4776 does not transform to a hold of price near 4784.

By looking at what the traders have done in the past at the level near this 4770ish region, we can see that failing to remain above 4785 will signal supply issues above and that we are a) either in a rangebound channel or b) that we might fade into a deeper support line.

So now, let us think about the smaller probability event (at this time) that a short is the play – where is the line that tells us a short is no longer a viable position to hold intraday.

The answer is that this line is at the resistance zone that the price has faded into after it was breached. That number looking at the daily chart is 4785 to the wicks higher. My thought is that once we breach into the wick price action, the chart could go quite a bit higher so choosing stops near 4799 where price has collapsed before seems like a lot of risk to accept in the trade. In this environment, where we see so much momentum and trend in the favor of the buyers, taking a short at 4784 with a tight stop at 4787 with a target of 4776 to 4772 is the potential strategy.

If the chart begins to expand above 4787, we are fairly sure that the pullback into 4784 means that we switch to a long by reversing the trade.

The moral of the story is this – vocalize in words (written or spoken) what the traders have been doing and where they either collectively moved up or down using the daily charts, and then write your scenario with the outcomes possible so that you know absolutely what the roadmap looks like then you can execute. SLOW IS FAST building your portfolio balance.

Note the tighter time frame shows that we are in a range so indeed, highs could be shorted with tight stops and taking profit at 4hr congestion



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