On Tuesday (11/16) I woke up late. I woke the family up and hurried them off to school. To make matters worse, I stopped for coffee. When I finally fired up my monitor I saw that I missed the start of a massive downswing.
In the past I would have immediately started to panic and would start selling at random points, not wanting to miss the big drop. I knew the drop was coming because price had been congested in a small range for a few hours so once price dropped below 1.3575 – the party would be on.
At the very far left of the 30 minute chart you can see that price made a swing high at around 1.3655 then immediately dropped to about 1.3575 before chopping around for the next 7 hours.
When I did cut on the screen it was a little before 8:30 and I usually don’t like to start trading during the equities opening bell. So I nervously sat and drank my coffee while the market continued to drop.
I wait 15 minutes and then start to look for opportunities to join the party. But with all of this selling, how do you know where to get in? I have all to often been the sucker selling the low of the day and then trying to decide how much pain I could tolerate before dumping my position at the high with a big fat loss! But not anymore! Losing money has a way of getting your attention like nothing else can!
A 3 minute chart with 3 moving averages is all we need to join any trending market – EVEN IF WE MISS THE INITIAL MOVE!
The moving averages are all exponential – one at 8, one at 13 and one at 21. (There is some voodoo or magic with the 21 EMA, I am still trying to figure out what it is…). When a strong trend is underway the 21 EMA seems to hold as support. Price may occasionally pierce the 21, but rarely closes above this magic line until the trend is over. Combining this with a little market structure, we can time our entries by looking for pullbacks towards the 21 EMA during a strong move. I have my charts color candles that make lower highs (LH) and lower lows (LL). I have also programmed my charts to make the space between the 13 and 21 EMA appear as a cloud. Any time price enters the cloud and the slope of my 3 EMA’s are still pointing down, I am looking to sell. Since LH’s are a three candle formation, you will not know that it is a lower high until the next candle closes. But once I see the LH has painted, it gives me the confidence to know that I got in at a good point. From the chart you can see that during this downtrend price entered my “cloud” 4 times (There was actually a 5th and a 6th that can’t be seen on this view). and each gave me my standard profit target of 21 pips, with relatively no drawdown.
If you have bigger balls than I, then each of the entries could have been a point to add on – building a nice sized position to really capitalize on the move. I am working on this, but not quite there yet… so I took the trade successfully 5 times losing on the 6th try as the trend started to reverse.
Now if only I could be this patient every day….
