April 27, 2024
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For the longest time I got caught up in the idea of catching the tops or bottoms of the market.
This often ended in a loss.. but every now and again, I’d be right.. and those few times I was, it would make me feel like a trading god and in trading, there’s nothing worse than hitting the target with a bad technique.
It gives you a false sense of skill and builds poorly structured confidence; confidence you can’t rely on. This led to repeating the same mistakes: trading without a true edge and… “hoping”.
That’s when I learned that trying to catch reversals won’t make me a successful trader. But if not reversals, then what?
Focus on Trading Continuations Rather Than Reversals.
Looking for continuations has many benefits. Looking for reversals only has one… and the cons outweigh the pro.
In a typical H4 leg, there are only ever 2 reversals: the top and the bottom, but you have anywhere from 3-6 continuations on average (sometimes more, sometimes less). Looking for continuations will give you more chances to get in on the right side of the market, increase your potential returns and increase your overall strike rate.
Failing to do so will have the opposite effect.
Reversals look great on social media and it’s easy to get caught up in the “sniper entry” game. But isn’t it more appealing to just make money consistently, rather than the few times you do manage to catch the top or bottom?
Once I made this change, my trading success became tangible. My strike rate increased and my equity curve was on a steady incline for longer periods. The best part was- I didn’t have to change my strategy- I just had to wait a little longer and let price play out. Once I was confident in market direction, the entry was easy.
Here’s how I approached making this shift:
#1. Multi-Timeframe Analysis
Pairing a Higher Timeframe with a Mid Timeframe is crucial to getting on the right side of the market.
I used to think flipping through various timeframes was a good idea- it wasn’t. That just led to inconsistencies in my approach and hunting for setups. If you look hard enough, you’ll always be able to find something to risk your money on.
Now I focus on the 4 hour timeframe for my overall market direction. This is important as an intraday trader. Sure you can use the Weekly and Daily timeframes but in reality, there just isn’t enough relevant data to provide us with a good idea of where price is heading for the day. I follow simple Supply and Demand theory and Market Structure on the H4 and pair it with the 15 or 5 minute timeframes.
The mid timeframe is used to confirm where price is heading once we hit the H4. It doesn’t really matter if you trade Supply and Demand to be honest- the H4 itself is a goldmine of information. However you determine your entry criteria on the higher timeframe, use the mid timeframe as confirmation.
#2. Wait for the Mid Timeframe price to develop
It can be hard but this is where the true magic happens. This is where traders start to force the reversal entry. This is when patience is most needed or we end up repeating the same mistakes.
Understanding that there are more continuations than reversals, we know that we don’t have to catch the reversal. This is where we need to fight the urge to find that top or bottom; to cut that urge.
I wait for the m15 or m5 to shift direction and hold direction. As long as I’m trading with the H4 direction, I can take advantage of the continuations on the way to my H4 targets. If price changes mid timeframe structure and it doesn’t align with where the H4 is going, I simply wait until it does.
#3. Catalysts for Pullbacks
From a technical standpoint, you need to be able to asses where price is shifting in structure vs just pulling back. 9 out of 10 times when a trader looks to short a bullish move, it keeps running long. Just because a low goes does not mean it’s bearish now.
Catalysts for Pullbacks are previous supply or demand zones that cause current price to react, often giving suggestions that price may want to reverse. In reality, it just pulls back for a continuation.
My trading drastically improved when I discovered what types of reactions were just pullbacks. While old price is relevant- it’s not as important as current price. Old points of interest often trick traders into looking for reversals.
My advice- always wait for supply or demand to truly take control before thinking of switching bias.
(To better understand how I trade, check out my advanced trading course at The Advisory.)
#4. Enter with confidence
Backtest. This is one of those things where you kinda just have to do it. But with moderation. Trading confidently as a day trader is a skill - It doesn’t just happen. Certain actions you take as a trader build confidence - backtesting is one of them.
Get a good feel for how the mid timeframe moves in reaction to the H4. Build some case notes on how often a continuation sets up. Monitor market data in hindsight, monitor it in a live market. Use FX Replay to simulate your edge. A key aspect of trading professionally is being able to execute without fear.
Footballers put countless hours practicing outside of their matches. Most success is found off the pitch. Muscle memory is built through practice and repetition. Trading is no different.
Spending countess hours and taking countless trades trying to catch the tops and bottom only resulted in frustration for me. There was no profitability until I started focusing on continuations. Once I built a framework for my technical approach, the rest was on me to be patient and resist the temptation to be a social media “sniper god”. Being actually profitable was much more appealing.
That's all for today. Have a good one!
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