Tuesday, August 30, 2011
Poor 1PB setups on soft-trend days
1PB is usually the best opportunity for a swing trade on a trend day and I normally take it even if it looks poor. A great example of a poor setup was this day. b6 and b8 are not really 1PBs because at that point, we are probably in what appears to be a trading range. 1PB is a setup in a new trend and it will usually fail in a trading range.
However on a large gap day and a strong b1, there is still some chance its going to trend (as it eventually ended up doing) and what could possibly be a 1PB may be worth the risk/reward.
A deeper pullback to the ema at b21 or 25 is a far better entry since its at a support, 2 legged and below the trading range.
The second feature of a large up gap followed by a large b1 is that there is a very good chance it will turn into a soft trend. This means any fL2 such as b38 and b43 are valid setups. However, I often will only scalp them or pass them up and wait for a deep pullback such as b54. This is because a deep pullback is more likely to allow my swing stop at my entry price unmolested while it grinds higher.