Monday, March 4, 2013
Structure before pattern
A tick or bar scalper only needs to find setups that move at least as many ticks as his stop. A swing trader's job is harder, since he has to correctly identify setups with a high probability of a large move. But the advantage of the swing trader is that he comes out ahead even with a 50% win rate.
One of the classic big move scenarios is a failure. A failure of a W trade (#1) sets up a measured move of the size of the W in the opposing direction. If the W setup was weak to begin with (b19,20), this strengthens the failure trade (#2).
Failures usually have a second leg and after the move down to b26, you should never take a reversal until a new low is reached (b52) or 3 pushes to a HL.
A second leg trade (#4) may only take out the prior leg or it could give a large breakout. A channel type move such as today is more likely to reverse while a breakout is more likely to result in a sustained trend.