Lets look at yesterday's trade on the Dax.

The major trend moves came off multi bar highs and lows.

I have found this to be consistent behavior.

This type of price movement suggests that trends the majority of the time do not start from the middle of tight congestion.

Price tends to wash out either the buyers or sellers before trending.

The price trends down are marked with an orange line.

The price trends up are marked with a green line.

Note that the trends started after failed expansion bars.

We can use information through study to formulate trading strategies.

Dax trends.jpg (124.67 kb)

One thing I notice with trends is that on retracements price often bases but then pushes just below the lows to take out stops and panicky trend traders.

This is the natural order of price movement in that for a trend to move it needs a continual supply of new fuel.

If the trend is up and a trader is already long he will not bid up price.

If he is not positioned he will be tempted to trade into a position and in effect provide fuel to the move.

Price structure of a single bar in the context of a set of bars gives clues as to when traders are caught out of position.

This is what I look to trade off.

This does not mean I nail every move! For me it is still constant learning and practice.

Dax sep23.jpg (134.28 kb)

SPI sep 23.jpg (134.16 kb)

There is a few ideas I have formed from watching trading screens and executing thousands of trades over the last 10 years.

To me it seems that markets trend when the majority least expect it.

This creates the fuel for a directional move as traders caught in losing positions cover and momentum traders jump on the trend.

For a group of traders to be caught out a sudden directional move is required which requires a re-adjustment to the new reality.

The past 2 posts illustrate such a move with the "failed probe".

There are other patterns like the tap pattern, pump fake and inside bar failures that create this cause and effect.

It may be worthwhile with trading to think in terms of boxing.

The advantage is gained in trading by hitting with a counter punch when your opponent is off balance.

Alexander at www.tradewithpride.com has been a great help in creating a trading structure around various setups and some proprietary parameters that I have adapted to fit my style.

A Real Trader VS the pretenders

It frustrates me that many traders and investors seek out education from gurus and investment advisers that don't make profits themselves.

If you are forking out money to improve your trading I think it is important to do your research.

Although I don't regularly post my results. (I don't have the time to teach and I think Alexander does a good job) you can see my past results on my old blog at http://davinstradingreport.blogspot.com/ on the right hand side.

Since this time my results are still what most regard as excellent returns. (I think it is important to show I am a profitable trader because many in this game don't walk the talk)

I will get my last few months results once they're audited.

Lets have a look at this chart of the Dax.

Can we form a trade scenario from the price data shown at this point in time?

This is where we apply our risk / reward parameters real time for trading.

We now have an inside bar at a major resistance zone.

Price is extended on a short term basis.

I would be looking to short the Dax on a break below the inside bar as what occurred at the 12:10am price point.

My stop would be above the high point plus a point.

I would scale out a 3 position entry as price approaches 5550 as this would be a minor support level.

No.1 - We will be successful or unsuccessful putting on a trade and we have no control over the outcome.(emotionally prepared to take a loss)

No.2 - what is our risk - 8pts

No.3 - What is our reward - approx 25-30 pts depending on movement.

This is a risk / reward I would be willing to take.

(this trade I took this evening. I wanted to show the process I went through for the decision making.)

If the trade did not prove profitable and I was stopped out it is still a good trade as I cannot control the future just my trade parameters.

Can you do this on a consistent basis?

Dax trade aug26.jpg (130.53 kb) Click to enlarge