What do you think of these common mistakes?

[steveepperson]

Today, I took two trades from the AUD/JPY 5 min chart in the second half of the New York session. Check out this chart:

Since price is at resistance, you have to go short here, right? After all, that’s what the gurus tell you to do. Wait for that magic “pinbar” or “engulfing candle” and go short, short, short. Well, not so fast.

The mistake that beginners make too often here is assuming that there is a reversal at every support or resistance level. As you will see, that is not always the case.

Now, I realize the candles are small and don’t look earth-shattering, but it still is a strong move. This is a bull breakout without any real pullbacks. And it went up even more:

There are still no pullbacks. The two little bear bars are merely pauses. A true pullback is defined as price breaking the low of a prior bar, which hasn’t happened yet. I entered the trade at the blue line. My initial stop was below the red line, but then I trailed it immediately (gold line) when price made a new higher low.

There are two mistakes beginners make during a strong breakout:

1. Waiting for a pullback that may never come. If you notice, I bought high. But that’s okay since the probability is good that this will go at least a bit higher. If you see a breakout this strong, even with small candles, you have to get long.

2. Having a stop loss order too close to your entry. Look at my initial stop. It’s far away. Only after it made a new higher low did I tighten it. The first stop loss is called the initial stop. The second stop is the actual stop.

Adjust your position size so you can absorb the cost to your account if you get stopped out. In this situation, if price moved down to the support are where my stop was, I would scale in to have a chance at getting out break even.

Finally, a pin bar reversal! So, immediately go short, right? Yes this could be a reversal, but many times, price will blow right through reversal signals within a strong trend. It’s best to wait for confirmation.

This is normally a decent place to enter the market, but instead, we got this:

Darn, a double-topping pattern. So, although I was trying for a decent profit (green line above), I will have to settle for a scalp instead. That’s okay. A small profit is better than no profit.

The gurus will often tell you to “set and forget” your trades. They will tell you to let your stop get hit, even when the price action says to get out. That’s stupid! Besides, when was the last time you really forgot a trade where you were risking real money? Never!

Here’s what happened after that:

The decision to get out was a good one. The double top was really clear from this vantage point.

I later tried to go short, at least to the trendline, but price did not cooperate. Mercifully, the market let me out breakeven later on.

I hope that taking you through a live trade will help you see that trading is hard, and it’s best not to listen to the gurus who think that trading is as simple as waiting for “this secret set-up.”

Let me know what you think, and there are no dumb questions in trading, so please ask.

[steve369]

That’s an excellent technical trading analysis on the 5m chart. Full marks for posting it.

While I trade the Daily/4hr chart in the main, I always go down to the 15m and below charts to see what is happening to price movement there - which must align with the higher TFs for me to consider a trade.

You can call that being patient.

[steveepperson]

@steve369

While I trade the Daily/4hr chart in the main, I always go down to the 15m and below charts to see what is happening to price movement there - which must align with the higher TFs for me to consider a trade.

Do you find the price action similar on the smaller timeframe charts?

[steve369]

The price action is exactly the same on all charts.

However, for example, a candle on the day chart is a combination of price movement throughout the day, which includes many ups and downs from the lower TFs. The value of looking at lower TF’s is where market sentiment is moving at that time.

That could assist you in placing an entry on the Daily chart - or waiting for a better opportunity…

[ProfesorPips]

@steve369

The price action is exactly the same on all charts.

Exactly, cover vertical scale, and you don’t know which time frame you see. There is other thing which you don’t see on chart. Setups on higher time frame are more important than on lower time frame.

[steveepperson]

@ProfesorPips

Setups on higher time frame are more important than on lower time frame.

I’m wondering if you can elaborate on that, professor.
I’ve heard the argument before that higher timeframe signals carry more weight than on smaller TFs. However, you just admitted that there is no difference in the price action between the timeframes. So, how can this be?

[steveepperson]

@steve369

The value of looking at lower TF’s is where market sentiment is moving at that time.

I agree. Say, for example, the EURUSD dailies are in a trading range. Some traders look for reversals at either suppport or resistance using the 5min or 15 min chart for an early entry heading back to the center of the range. The market will often lead to a swing back to the middle third of the range, where you would likely take profit.

[ProfesorPips]

Because you can find same patterns on different time frame, but these on higher time frames are more important than on lower time frames. Can you tell me what time frame you see on charts below?

[tommor]

What do you mean, “working with” AMarkets. So many people use this expression about AMarkets.

A client does not work “with” a broker. They work for you. They generally do not help with trading in any way except they throw up some charts and take your money.

[Kashmaster]

Little adventure that ride!

For my part i came to the conclusion, to scalp or take trades in a range only in the main direction, that cuts again the number of loss-scalps. I also would look at the 15 min chart whats going on there to spotify a direction tendency.

If I were infront of that chart in the first picture, i think i would have been in a waiting position that price moves down, reverse and goes again up (cause the higher lows signal some kind of upward tendency). than i would have entered long.

As this did not happen, i am sure that somewhere between picture two and three during the upmove i would have jumped into a long scalp for some fast up-pips(i hope before the pin-bar…).

[steveepperson]

@ProfesorPips

but these on higher time frames are more important than on lower time frames.

I agree that you can find the same patterns on all timeframes, but why are the ones on higher timeframes “more important?”

[steveepperson]

Good points all. If you notice, I did get in a bit late. The point I wanted to make is that most beginners are told to wait for pullbacks that may never come, and thus being trapped out of a decent trade.

I know that “FOMO” trades have become a dirty word, but if you see several bull bars closing near their high in a breakout, you have to get long.

[ProfesorPips]

Because higher time frames are more stable than lower time frames.

[steveepperson]

You make a pretty decent point, Profesor. I’ve been taken out more than twice due to intra-day volatility as a day trader.

Also, since there are fewer candles on the chart to deal with, it appears “cleaner” than smaller timeframes. Still, I am hoping that since you are a professional trader you would never suggest that the market creates “noise.” That’s because you and I both know that institutions trade ever bar on every chart, providing important information all the time.

Nice talking charts with you. Now, I will let you get back to class.

[ProfesorPips]

@steveepperson

you are a professional trader

where did you found this information?

@steveepperson

never suggest that the market creates “noise.”

do you really think that tick, M1, M5 charts gives you valuable information?

@steveepperson

that institutions trade ever bar on every chart, providing important information all the time.

Poor stevee, do you really think that institution, hedge funds, banks, trading on every charts? you have much to learn.

[steveepperson]

@ProfesorPips

where did you found this information?

I assumed since you are a staff member here at BP, you are a professional. And I also glean that from reading your excellent posts.

@ProfesorPips

do you really think that tick, M1, M5 charts gives you valuable information?

Yes. In fact, since I trade primarily from the 5-minute chart I can obtain valuable information from any bar on the chart. Also, since the large institutions (and retailers) are trading every bar on every chart, every bar, whether a doji or large candle, can provide valuable information. I’ll write a post soon to show you what I mean.

@ProfesorPips

do you really think that institution, hedge funds, banks, trading on every charts? you have much to learn.

I’m not sure you understand what I said. There are institutions trading every bar on every chart. How else do you think the candles are forming? The candles may be small, but the volume to move them is quite large. There is no such thing as noise.

[ProfesorPips]

1. I am not a staff member at BP

2. tick, M1 and M5 gives information… for institutions with millions of dollar trading capital, which use HFT and AI in trading. This is not a trading field for retail traders.

3. charts start from tick chart, higher time frame are part lower time frames for example, the 5-minute chart is the combination of 5 minute candles together and so on.

[samewise]

@tommor

What do you mean, “working with” AMarkets. So many people use this expression about AMarkets.

Spammer. Making the rounds.

[samewise]

@steveepperson

I hope that taking you through a live trade will help you see that trading is hard, and it’s best not to listen to the gurus who think that trading is as simple as waiting for “this secret set-up.”

That was really awesome. thanks for the pics and play by play. I need to get studying on specific bars and patterns.

[Blue2]

The first screen shot could have gone either way. 51% chance it would go down, 49% chance would have gone up (as it did). What you did correctly was to be patient and wait for the break-out instead of piling in. I prob would have shorted and placed a v tight stop just above the resistance line. I’d have lost, but only a little bit. When you magnify in v high and go to 1 min charts at a resistance line the chances of the trend continuing or reversing are pretty much 50:50. It’s all about where you place your stops. No magic to it.