Wednesday, February 29, 2012

Getting shaken out II - Poor setup bar.


Often in the heat of the moment or out of boredom or desperation or a fear of missing out, you may end up entering on a less than ideal setup. This happens to the best traders and I'm not sure if there is ever a cure for it. Although these trades may eventually work, you may have to sit through a multi-bar pullback. The more pullback bars you have to sit through, the greater the chances you will get shaken out of the trade.

A great example is b29. Its an inside bar after a very strong leg off a W. You may buy above it expecting a large breakout bar, but right after entry it turns into a bearish outside doji bar. Such an entry bar is extremely demoralizing and the trader will begin to see everything that's possibly wrong with the setup bar. It was a 3t doji bar with one body at ema. The entry bar gave a double top with the prior swing high. A second L could turn into an A2 short, etc. The likely result is that the trader will exit at a small loss and the price immediately starts moving up.

A second example is buying above b46 (instead of b47). Given that b46 is a bear bar, an H2 above it is highly likely to result in a pullback. The trader may start seeing similar arguments as to why the entry was incorrect and exit at breakeven or strong loss just before price starts moving. Technically, both entries worked. b28 low and b46 lows were respected. But 6t stops were hit. When signal bars are larger, larger fixed stops are also likely to be hit.

Note that waiting for a strong bar (b33, b47) would have prevented poor entries. A strong bar such as b47 often will insulate you from poor entries since sellers are likely to sell the close of that bar, preventing it from triggering. A poor entry will often give a second entry (b49 with b46) that will often have a better close or lower risk. Those should help you avoid being shaken out.

In general, only taking setups where you are likely to get a strong entry bar is the only way to avoid getting shaken out. These include A2, G2, W1P and 1PB.

14 comments:

  1. Hi Cad,
    I bt the a2 off bar 11. Wasn't that a pretty good setup with a strong reversal bar 2nd attempt at ma that didn't overlap too much....

    This was actually my first attempt trading a2 because I previously did not feel sufficient trust in Al Brooks m2b/m2s to trade them... And the experience today doesn't help :-)

    Amazing but it seems every time I try a new setup it works against me...

    Thanks Man!!

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    Replies
    1. A2 is a with trend setup. Once there is a reversal (b6) or taking out the low of the day, you are no longer in a bull move.

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  2. Cad,

    Why isn't b11 an XOD or fBO of the opening range?

    Thanks,
    Manuel

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  3. Cad, please ignore my last question. I think the answer is to not take the fBO of the opening range, if there is a strong 1Rev on the other side.

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    Replies
    1. You had a strong reversal at bar 7 and the attempt to hold and rally at bar 8 which failed. Bar 11 looks good but in context of the price action a bad decision.

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  4. Hi guys,
    Can anyone tell me what is the difference between a 1rev and an OR, any difference in implications?
    Thanks!

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    Replies
    1. Trader33, read Cad's post on Oct 18, 2011

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  5. This comment has been removed by the author.

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  6. That was great Manuel, I do now understand why the bar 11 long was a losing proposition, this was one of the XOD setups that Cad explained was a high prob short for the remainder of the day - the day that starts out as a hard trend and then violently reverses... Great stuff Cad!!

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  7. Cadaver how do you know to take a W like the one show above on 2/29 but avoid what I intrepret as a W on 3/6. On 3/6 B25, B28, and B34 I look at as a W. I didn't take it because of all the downward action but I thought I was making a poor emotional decision. By luck only I turned out to be right but I would rather know why technically it was not good. Thanks fro any feedback you can provide. Best regards.

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    1. B25,28,34 are indeed a W, but its a microwedge.

      Note that W are only indications of pullback or trend termination and not necessarily a reversal. I'll create a post on this.

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  8. I'm going to try to answer my own question. I am reading the 3rd book in Al's series and I skipped to the chapter on Wedges.
    I think if the wedge on 3/6 that mentioned was a Wedge PB it would have been fine. Wedge PBs don't have to have significant large pushes. But for a Wedge R the three pushes have to be large as they were on 2/29. That is primary the difference between these two wedges and why 2/29 was good to take and 3/6 was not.

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  9. Cad,
    Just donated to your blog. I encourage anyone that reads this blog to also make a donation. I hope you will continue to post on a regular basis.

    ReplyDelete