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Hello,
When there is a huge BO in good context like the bull BO shown on the chart below, there is generally a 70 percent probability of a measured move. My question is, why does the 50 percent pullback after the huge bull BO not lower this probability? I see it as bad follow-through after a BO like that.
Hi Andreas,
I think Al put the 70% chance label just for the BO bar itself. Then once a deep PB happens it would lower the probability maybe to 60%-65%, which is still ok for a 1:1 target. Buyers at 50% PB doesn't necessarily mean the BO itself is bad, especially if it's at a location likely to be start of a trend. It's simply too big, so bulls still want it, just a little cheaper.
Hello Mr. Carpet. Thank you, that does make sense.
If you look at the chart below this reply, there is a bull surprise (marked with red) that is probably strong enough for a measured move up. Just after this bull surprise there is then 2 reasonable short swing entries (marked with two small red arrows). Does this mean that the bull surprise does not dominate anymore and the probability of a measured move has been lowered significantly, or how does these short swing setups affect this when they occur immediately after? And do I exit below these reasonable short swing setups If I bought one of the blue boxes at the bull surprise?
Hi Andreas,
I think it makes sense to exit here even after a bull surprise. After a surprise can expect one more leg up but it looks like one of the dojis that followed was a small bull bar already so counts as 1 bar leg up attempt (hard to see though) and bulls aren't able to follow through. Also generally a trader buying so high in TR (blue box) at (A) is expecting the kind of breakout that (B) did. Immediately great breakout. Waiting around at this location isn't great because at TR highs it's best to sell, so if a breakout (which is low probability) isn't happening it's best to exit quickly. Also, Al's boxes are swing trades. It's not likely that a bull swing and a bear swing almost at the same time are possible, so you can use opposite color boxes for exit signals.
Hello Mr.Andreas,
I believe the key point here is to determine the premise for the trade and to continually re-evaluate it.
At the second red arrow, I think the premise for the bear is that the bull surprise is a vacuum test of the trading range high and a second leg trap, and this was a second entry sell at the top of the trading range.
On the other hand, I think the premise for the bull during the bull surprise is that this is a spike in an early bull trend. Price is forming higher lows. Therefore, it's converting into a bull trend and at your red arrows, price is just forming a bull flag.
Then we continue to evaluate bar by bar. When we see that price is failing to close below, we re-evaluate thinking if the L2 short is working or if this is a bull flag. Maybe things are not looking good for the bear. When we see that more bull bars are being printed and they close on their high, it looks like the probability for the bear case (top trading range) is lowering significantly, and PA seems to be confirming the bull case (developing bull trend).
As Mr. Brooks said, the probability for the bull and bear cases revolves around 40-60% most of the time. The earlier the entry, the smaller the risk, but the lower the probability. As you can see, we can be more certain when waiting for more confirmation (follow-through bars), but the price would then be further away.
Thank you both for detailed replies. They are very helpful.
When Al talks about exiting below a bear bar closing below its midpoint when in a long trade and exiting above a bull bar closing above its midpoint when in a short trade - does this apply for all swing trades despite context or is it only when the exit is a swing setup in the opposite direction? For example, if you buy the close of the big bull surprise on the chart below for a 1:1 move with 70 percent probability at that time, there is then multiple bear bars closing on their lows. Do you exit below these (and look to re-enter) even though you still have a decent trader's equation because the probability only lowered sligthly or do you hold?
Hi Mr. Andreas,
I think there are many ways to manage your position, but there are 2 things that a trader must obey: do the reasonable things, and be consistent with your chosen style.
Regarding doing the reasonable things, these are the course content. And yes, I think exiting bellow 3 conservative bear bars closing on low is one of those reasonable things.
As for being consistent with management style, my take is that if one is quick to get out, one must also be quick to get back in. And one would be doing so by reasoning the bull case vs the bear case with every new bar. Especially, when the action is hot after such a big BO bar.
For example:
Traders can exit after the 3 bear bars, then re-enter long when seeing price setting up a 2nd entry long at 50P.
Some traders would rely on correct stop at the bottom of the bull BO or LOD, and scale in at 50P instead, then place a limit order to exit at the highest strong close. As we can see, on the move back up, there is a doji with big tail on top right at the highest strong close evident such traders did this.
Some traders would scale in and hold until there is a strong setup in the opposite direction.
Some traders place their stop loss and profit target at the measure of the BO bar then walk away trusting on the overall probability.
And so on…