Trading Price Action Trading Ranges by Al Brooks

Author:Al Brooks
Language: eng
Format: epub, pdf
ISBN: 9781118172339
Publisher: John Wiley & Sons, Ltd.
Published: 2011-11-19T05:00:00+00:00

A low 2 setup is not enough reason to take a countertrend trade in the absence of a prior strong trend line break. In fact, it will almost always fail and turn into a great with-trend entry, like a high 2 buy, as happened at bars 4 and 6 in Figure 17.7. A low 2 is a setup in a trading range or a bear market and never in a bull trend, and this is a bull trend so traders should not be looking for low 2 setups. Before shorting a strong bull trend, you first need the bears to show that they have already been willing to be aggressive. You look to short their second attempt at pushing the market down, not their first, since the first usually fails. When the bull trend is very strong, you can even consider buying below the low of the prior bar, expecting any low 1 or low 2 to fail. For example, you could place a limit order to buy below the reversal bar that formed before bar 2, or you could buy on bar 5 as it fell below the low of the prior bar, expecting the low 2 to fail. In general, it is safer to buy on a stop above the high of the prior bar; but when the bull trend is strong, you can pretty much buy at any time and for any reason, and buying below the low of the prior bar is logical since you have to expect most reversal attempts to fail.

By bar 4, the market was in a tight trading range so bar counting was getting confusing. You should ignore it at this point and, since the bull trend was so strong, just look to buy on a stop above any bull bar, like the bar after bar 4.

Figure 17.8 Failed Low 2

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