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Today I thought I saw a wedge bull flag that scared me out of my short position. I was aware of the wedge in spike and channel bull trend that was reversing from a double top on higher time frames. I was looking to ride this reversal for a small move down to the beginning of the bull channel. After I entered short, I saw 3 small pushes down that reversed up just above where I had my profit target. After 2 dojis were formed with long tails below, I thought we would reverse and possibly double top the high of day so I exited my position. I then went long where I exited my short trade, and got stopped out for a loss below those doji bars. Unfortunately, I would I have hit my profit target easily if I had not exited my first trade and then flipped my bias. I had my inital stop above the HOD, but I thought it was possibly a good enough buy setup to exit my short early and avoid a loss.
Was it reasonable to exit my short position above those doji bars? What are the reasons you would not be worried by those doji bars like I was? Was it because there was not any real confirmation for the bulls? That the second doji had a bear body and was not a bull bar? Even the larger bull bar that came after a couple more dojis had bad follow through and it rejected off the moving average - if there was good bull follow through after that would that have been the only good reason to exit my short?
I realize that I jump the gun out of fear of a loss, and I'm working on that. I was not confident that we'd make it as low as the start of the bull channel which is why I exited, but we went even lower today. Should I have had a lot of confidence that we'd have no problem making it to that level?
Thanks in advance for any help!
I forgot to specify that this is the Micro SP500 Emini.
I have learnt the hard way, what I have heard Al say quite a few times, Not to reverse immediately. Wait a few bars.
My personal experience has been that unless I have already been planning to reverse if certain conditions are met, and hence have properly reasoned out why I want to reverse, otherwise reversing overall does not work out profitably.
In the above example, if I was trading live, I would have considered exiting my shorts above the small bull doji, a reasonable move. Holding short also would have been fine because of many reasons:
Considering 3 prior consecutive bear bars, getting rejected many times at MA, and a weak buy signal bar.
And because of the same reasons and also what I wrote in the beginning, going long would not have been a good move.
And even if one goes long on that bar, the long position should have been exited and preferably gone short when there was an almost perfect 2 bar reversal (and another rejection) @ MA.
Hi Robyn. Do note a few things that you probably did not consider in planning your trade and its management.
Markets constantly try to reverse and fail. It has inertia and tends to continue doing what it has been doing. So, it resists change. Taking that into account - exiting your short as you expected a reversal was not very prudent. The wedge had almost no buying pressure. The bull bars that appeared in the wedge were not strong had no FT. On the contrary, the market was falling in a very tight channel and therefore, the first attempt at a reversal would have probably failed - which it did.
Keeping that in mind - that long which you entered was a place where only weak bulls would have entered. The market at that point had not shown any buying pressure at all and you should note that most wedges only result in a TR and not an MTR. Wedges as a flag in a trend on the other hand are excellent signals for trend resumption as I have observed.
Finally, even if you entered the long which was at worst a 40% probability bet(as the markets were not in a BO), the probability you had was not at any point below 40%. However, to maintain the math - you should have considered exiting that position when you did not have proper FT buying probably at breakeven or at a small loss. Waiting for the trade till stop was not the best move either.
Also, like you said - you were expecting a selloff till the bottom of the channel in the spike and channel bull but you need to know that you have extremely high probability when you are waiting for the last 5-6 ticks. At that point, you are practically risking a huge amount for those last 5-6 ticks and you can not hold on to your trade unless you are very sure that the target will be achieved. Otherwise, the math won't make sense.
Hope that adds some value. Happy learning and trading!
Thank you both so much for your insight!
@Abir Chatterjee I thought this was possibly a wedge flag in a trend that would create bull trend resumption like you mentioned. A very great wedge like that happened on Friday. That wedge on Friday happened after the first bull swing of a breakout and was the first pullback. Is that the big difference here? That the wedge from yesterday was forming at the end of the trend - after the second bull swing up and at resistance? Therefore, not a strong chance that this would be a wedge that would create trend resumption? The trend resumption was what I was afraid of and was my basis for exiting my short and going long.
I still have a lot to go of Al’s course and have not even made it to the Trader’s Equation section. I’m sure a lot more will become clear as I continue. Thanks again!
Hi Robyn,
The wedge you're referring to was following a very strong bull BO and the chances of trend resumption was near about 60%. Adding to it, the wedge on Friday had very little selling pressure and sufficient buying pressure to be able to resist any change in the trend. The market was clearly AIL on Friday and the wedge could also have been seen as a H2 buy, thereby the chances of it working was good enough.
The day you posted originally had very little buying pressure, was falling in a very tight bear channel and was following a spike and channel bull trend, which means that the trend had weakened from the BO phase to channel phase to the TR phase. You saw more than you actually had to and exited your position in panic, and even bought.
There was a difference in context, which will come to you with practice. Also, a small suggestion - if you can't stop trading while you are learning, you might lose patience in the process due to frustration and give up altogether. Dr. Brooks keeps repeating this throughout the course. Me and probably every senior member here who follows Dr. Brooks' teachings will strongly recommend you to stop trading at this point and follow the due process of learning first. If you're interested in learning through trading, do so on a SIM account and not on a live one.
Also, do go through the course once first and a lot of your questions will get answered from there itself.
I will take your advice; I need to take it slow. Thank you for answering my very rudimentary questions. I learned a lot, even from the analysis required to ask the question in the first place. I appreciate this community!
Thank you for answering my very rudimentary questions.
Pleasure but no such thing as 'rudimentary'. You either ask to know from those who do(albeit at the risk of sounding stupid sometimes) or you don't ask and never know(while pretending to be smart when you are probably not).
I appreciate this community!
Glad you choose to see the bright side of it. Everything has positives and negatives. People in this community are mostly positive and helpful. It also has people who aren't here to learn or help and only to stop others from doing so. It will be up to your discretion which side you prefer to stay in(heads up). If you keep faith in the process and put the work in, you are in the right place. If not, you might just never find THE place which will turn you profitable. Dr. Brooks tell you the system in which you need to work and points you in the right direction - at the end of the day, you have to do your part for this to work.
Wish you the best in your endeavors! Happy learning and trading!
Robyn, may I ask which broker's chart is there in your screenshot above? thank you.
moving from forex to e-mini and can do with some recommendations.
kind regards
Dee Kumar, sorry for the late response! I guess I didn't have reply notifications enabled. The screenshots are of Tradovate. I don't have experience with other broker's to compare, but Tradovate has been working well for me so far.
