Missing swing trades
BPA trading room Q&A: April 5, 2016
Question 1: I did not sell once between 48 and 58 since I constantly was thinking near support, trading range bottom on the left. Any advice on this?
Video duration: 7min 33sec
Big up, big down
So he did not sell between 43 and 58. That doesn’t bother me. You’ve got a pretty good reversal. Down big, up big. I mentioned at the time, it was also a bear channel, lower high, lower high, and that we could be channeling down and that bears would be selling, especially below the second entry short 42.
But I don’t have a problem with not selling down here. You’ve got a higher low. It’s a bear channel, yes, so you can sell for a swing, stop above that and take a chance. But probably not going to go down all that far. It was a very tight bear channel, but you have to be able to use the correct stop. So if you sold anywhere through here, your stop is up here. And if you sell up here, maybe your stop is here; it’s probably better up here. I think it’s hard to structure a very strong trader’s equation. The probability is not all that good. Risk is relatively big, reward is relatively small. So I would not worry about that. Selling 54, possible exhaustive sell climax. 55, same thing. Possible measuring gap. I think if you’re quick to make decisions and manage trades, you could sell 54 close, 55 close. But I did not think it was going to fall all that much.
Logical not to sell
As far as advice on how to handle all this stuff, not selling this? I think it’s perfectly logical not to sell that. It’s not all that bearish. We’re still above a higher low. Yes, it’s a bear channel, but you’re selling low in the channel. If you want, you can say, “Okay, it’s a 10 bar bear micro channel. Maybe I’ll sell above a bar and put a stop above here or a stop above there,” if it’s really a small pullback bear trend. Pullbacks should only last one, two, or three bars, and they should not get above here. So theoretically you could trade small, put a stop up there, and take a chance that it becomes a small pullback bear trend.
But I don’t have any special advice about that. It’s really tough to structure a strong trader’s equation trade when the market looks like that. You’re selling low in a day that’s not all that bearish, or you’re buying and you’re in a very tight bear channel. That’s not very good either. It’s a scalper’s market, and you’ve got to be quick to make decisions. In general, I think traders will make more money if they stick to swings. I think that was a difficult swing to trade.
Question 2: I only see measured moves after the gap is established. What is the best entry strategy based on that, or is it too late in the move?
Never too late to enter swing trade
No, if you’re in a swing trade, it’s never too late to enter. Presumably, the first reversal will not get very far. If you see a measuring gap potential — 64 here, do you buy there? I don’t know. I’m not expecting a measured move up here; I’m expecting the gap to fill. Today was really not a good measured move day. You can see the best measured move was ‘open of the day’, low of the day, moved a measured move up. And then ‘high of the day’, open of the day, it moved a measured move down.
As far as measuring gaps on a trading range day, you have to assume every gap is going to close. We have a gap 8 above 2, it closed. Potential measuring gap 15, it closed. Potential measuring gap 34, it closed. Potential measuring gap here, it closed. Same here, it closed. You’ve got to be really quick to make decisions. I think it’s okay to buy the 53 close, I think it’s okay to buy the 60 close, sell the 34 close, sell the 15 close, buy the 7 close. But you’ve got to use wide stops and you’ve got to be quick to make decisions.
Trading range days
In general, if I think a day is a trading range day – like today, from the first bar of the day I thought it was a trading range day; I said it probably a hundred times today – in general, if it’s a trading range day, I’m going to be entering mostly with limit orders and mostly scalping for 1 point, sometimes 2 points. When there is a breakout that looks reasonably strong, 34 for the bears, 53 for the bulls, if I can get 2 points out of it, I usually exit at 2 points and then wait to see if it becomes a strong trend. If it becomes a strong trend, then I’ll swing part. But until it does become a strong trend, I’m going to assume that every big breakout, up and down, is going to fail.
But on a strong trend day, it’s never too late to enter. So if you see this, you can say “We’re already on a measured move; here’s the breakout point” – I don’t care. This is so strong, we’re probably going to go up for another measured move based upon the height of this breakout. So on strong trends, it’s never too late to enter.
Question 3: How do you trade around big spikes like 53, 60, and 68?
Immediately get in on spikes
When you see a big move like that, you immediately get in with the trend – I usually do. I’m usually anticipating, “Oh, 52. We may get a breakout on 53,” so I’m going to be prepared. Some of them, like 53, I think I bought and I may have gotten out breakeven. A lot of them I end up getting out breakeven. 60, I was okay. 68, I was very confident that we were going to get more down. Some of them are, I think, pretty high probability that there’s going to be follow-through. 6, 7 probably more up. 34, probably at least a little bit more down. 45, probably more up. 53, probably more up. 60, probably more up. 68, probably more down. But not a lot more.
I usually try to enter early. I often enter the market if I’m really, really early. If I’m 2 or 3 minutes into it, a lot of times I’ll enter with a limit order. I’ll put up a 1-minute chart, and if it’s a bull breakout, buy with a limit order below the low of the prior bar. If it’s a bear breakout, sell with a limit order at the high of the prior bar. But I do try to get in early.
On a lot of those trades, I’ve already gotten in and gotten out. Some of these I buy with limit orders here, and I’m getting out on the rally, or I’ll buy with limit orders when it’s starting to slow down here, and I’m getting out on the breakout. A lot of times I’m doing the opposite. I’m selling bull breakouts and buying bear breakouts, if I enter early enough with limit orders. That kind of trading, I think, it takes years. You have to do thousands of trades to get to the point when you can start reversing and scalping, quickly in, quickly out, and pocketing as many little 1 points as you can during the day.
It’s better if you can use a wide stop, 4 or 5 points and scale in, and then quickly make decisions. There were several times today when I entered – let’s say I bought, and I bought more 1 point lower or 2 points lower, and I decided it’s just not all that good, and I placed a limit order to get out at the average price of my trade, maybe with a 1 tick profit. So I did that two or three times today when I entered, scaled in, and I thought the reversal was just too strong, and I just tried to get out breakeven on the trade. On most of those, I entered again a bar or two later, in the same direction or in the opposite direction. I just keep going all day long.