Since I like to trade bounces off scalp lines and/or S&Rs, one problem I encountered is that sometimes the trend seems to go contrary to my expectations, despite my best technical analysis.
This, of course, becomes an enormous problem when you enter at market rate (as opposed to limit orders), because if you go short and the trend moves upwards, you’re in trouble.
Recently, however, I’ve started using the following technique - and I’d like to hear your opinion on it. I’m currently using it on demo, but if it is as effective as I think it is, then I’ll probably make it the critical component of my live trading method.
Basically, once I see that a trend is nearing its scalp line and/or S&R, I put two limit orders - one to buy and one to sell. Depending on the strength of the previous trend, I aim to put these orders so that they only get triggered as a result of a breakout or a bounce, and not by minor trend fluctuations.
However, since I don’t know where the resulting trend will end (I can estimate, but I can never be sure), the important thing is not to get greedy: I aim for 30-40 pip profit, depending on the extent of previous trend fluctuations. In other words, I try to exit before the trend reaches the next S&R/scalp line.
What do you think of this technique? It’s been working fine for me so far, but I’m curious to hear if there are any pitfalls here I’ve missed.