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In "42 Trading Climactic Reversals (Failed Breakouts)," one area I have struggled with a for a long time is what is discussed for several minutes going into least minute 14 -- the notion of placing a stop for a reversal trade at a measured move in the original direction. I understand the validity from a 1:1 r:r perspective, but aren't MM typically good targets? In other words, if an MM is a good target for a long, isn't it probably not a great place for bears to take a loss? Thanks in advance.
Not sure what you are referring to. Could you post a chart with the said MM and stop entry drawn in?
@ludopuig Thank you for the response. Here is a screen of the spot I referred to in the video.
Thanks Adam for the capture, here is the thing: The MM is drawn using the bear case, but it is not a MM a bull would draw to take profits had he bought where the bears sold. Therefore, it is not true that the MM is a good target for a long. It would had has the probability been 60% for the bulls, but at the top of a TR it is 40% for them, 60% for the bears.
If we are at the top of a TR, the bulls need to swing and scale-in lower with a huge risk, maybe all the way down to the bottom of the move / TR low around 2037, so their initial profit target is way above.
Once the MKT starts going against them, they can scale-in below and end up exiting at their initial entry price or, maybe like here, after that many bars down in a tight channel, it seems they bought more above the bull bar and took the opportunity to exit BE on the whole trade (I have drawn the lines with MS Paint so they are not exact, but you get the idea). Alternatively, because still within the TR, they could still be scaling-in.
@ludopuig Thanks for the thorough response, I very much appreciate it. Your point is fair, it's not a particularly reasonable MM for a bull to take. It seems to be then, it's more about it being 1:1 r:r compared to the bear profit target expectation that we set at the base of the presumed exhaustive bull move. Thank you again!