I assume, if I have missed first LH trade to enter, where can I enter into the existing downtrend? After making LL price made HH, then LH…I thought to enter (with confusion I didn’t make entry) after breaking LH (I have marked with black line). Am I right to reading the chart? please clarify. So much confusion, because after LL price made HH…my assumption is price break the previous swing high I think it will go up. Then it make LH and doomed.
My novice question is : In a downtrend, price making LLs and then it made HH…then a LH printed. In this case, when the LH broken to the downside I may enter into the existing downtrend. Is it correct way to enter?
Once a trend is in place, its OK to enter on a sell order set at/just below the L of any higher bar - one with a HH and HL. You can use the H of the higher bar as the stop-loss level, or add some points on if you want to give price a little more space for its inherent volatility.
The advantage of using an order for entry of course is that if price does not fall through that level, the order is not triggered and you can then, at the termination of the bar’s time period, move the order a little higher.
Bear in mind that the shorter the time-frame you use for your bars, the more likely that a higher bar will be followed by an outside bar with a HH but also a LL. This could trigger your sell order and stop it out in the same time period.
Of course, some traders always wait for the 2nd or 3rd higher bar before they set their sell order at the last HL. This can give you a higher probability of a price fall and a higher entry price, which is good in a downtrend trade, but means you miss some less deep entry opportunities.
I’m not a big fan of jumping into trades unless they make absolute sense. It should be very simple to understand and therefore repeat day in day out. Youre in a downtrend so most people may look at your HH and say actually that is a LH in the bigger downtrend.
Anyway, let’s go with what you saw. I always like a pattern to be complete so HH, HL, HH uptrend or LH LL LH downtrend. In your chart it is HH then you’ve got a LH which doesnt fit any criteria so I wouldnt trade it. The only time you could trade was at the break of LL you could sell as a continuation downtrend. At that stage you have LL, you’re HH becomes a LH and then you’re looking for a LL. If you jump in where you’ve drawn the black line you’ll find yourself being whip sawed out while the market is deciding on a continuation or reversal.
Funnily enough a sell order at the black line was the right trade but not for you. As you labelled the pullback a HH which meant you thought the market was reversing. If it is reversing then you shouldnt be looking for sells. That’s what I mean by the trade making complete sense to you.
