Entries and scaling

I will in some way answer some emails and questions about this which has been a hot topic over the past few weeks.

What I will cover is generic in nature and is applicable to everything that is traded and all time frames.

Lets look at a bare chart free from indicators and other distractions.

Given that this is a long term perspective there is much we can draw from this. But the main reason is to see where is price with respect to historic major turning points and what is price action like in the very recent past.
 

Now it is time to mark the chart gradually until we see something useful appear.

Tow blue lines show price entering into supply and on each attempt to push higher we saw sellers coming in and the bulls putting up practically no fight. This is proof enough for shorting and the market sentiment is now bearish.

Now that we have the big picture established it is time to go down to time frames more useful to gaining information on entries and targets.

Taking our lead from the weekly time frame I have marked where supply has been coming into the market and where the clear signs of bearish sentiment firmly now in control.

The two white boxes are places where pro money was positioning for the down move. In retrospect it is easy to say this, but simple analysis will allow you see this on any time frame and any market. A big part of getting it right is patience and the willingness to wait and be on the same side as pro money.

As the price continued its march to the right of the chart I have drawn blue lines to show where you would have gained new or additional entries if you had not already been short from a few weeks back. This scaling in and same idea for scaling out is visible on all charts, pro money wont hold for an entire more because they are the market makers and need to act long before you will, and in the opposite direction. This means trading against the main trend while their positions are filled, or close to, and then comes their major push.

These small pull backs are signs of profit taking and new orders coming in. On smaller time frames they will look like a long trend coming from retail day traders. As you can see, it is nothing but cannon fodder in the greater scheme of things.

Next we drop down to the 4hr chart and I have zoomed out a little just to show you the move from the top down i.e where it originated on this time frame and where the new entries, profiting taking and and results from pure supply and demand traders getting it wrong. Taking touch trades this close to the unwind of a major time frame is a dumb move. Price action will play out in the hands of pro money and they clearly have chosen a direction long before now.

Next we put more notes on the 4hr chart and see what pops out at you. In time you wont have to draw any of these because they will become so obvious that it only takes seconds to tell what is happening on any time frame. Its a good skill to learn from drawing and taken as a top down approach.

We know we are in bearish mode and just for this time frame we will consider that the move down from the top of the chart is the main move and not at a later time. It makes no difference but it is useful for me to get a single chart to get the message across to you.

The white box is the break where the decision was taken to turn bearish and it was a clean strong break and only a brief look back where I have the first tick mark. If you were not short prior to the tick, this was a clear sign the bulls have been beaten. If in doubt, let one more candle close and if the reaction is not in the same direction as the previous candle, then clearly you have more information about the intention of the bears.

The blue lines are pointing to candles where new short entries came in and on their close was your opportunity. Price action of all the blue candles which are mainly bullish shows lack of interest and again, this is profit taking, scaling in and smaller time frame longs that are nothing more than pull backs into supply over head.

On lower time frames is where you will have gotten in but I wont show them here because the method is no different to here. A 1, 5 or 15min will get you good entries timing during a day session and where you wont miss as much of the move. Keep flicking between time frames as each successive time frame candle closes, multiple monitors are invaluable for this.

Here is a 1hr chart that shows the above charts white box in more detail. Can you now see how the break can be seen tested here very quickly and what the reaction to this test was?

A superb place to enter which is where the majority of smart traders will have to waiting to see tested. All the chop you see on the left of the chart can be very common when the market is turning. You can avoid all that mess if you use a very basic method to show you when there is a clear direction.

Note the other tick marks, all show nice price action for impending shorts.

This is the same 1hr chart of the same area, but this time I have drawn two red lines. If you guessed these are support and resistance you would be correct. What we want to see is a break and test of these lines with a clear commitment to a direction. Given we knew for some time the higher time frames were showing historic supply, we have been biased to looking for shorts when the time came. Look how long we had to wait?...but that's okay because patience is ingrained on all we do.

There is a tick mark here above a bullish candle. But the candle is far from bullish and all it done was trap day traders who entered long and later on took out their stops which hands cheap short entries to pro money. This happens every day and on every time frame. You will see these by the dozen every day. Higher time frame info is your lead, always.

With regards to targets, the major two are on the first chart. As a day trader you want to know where these are before you short in case you are trying to short into an area where profit taking on a big scale will come in and can lead to a minor long market.

Unless something is obvious, don't trade it. This applies equally to entries, stops and exits. With stops put them beyond the obvious. A recent high or low needs to be passed by some amount of points within your risk appetite in order to stay in the trade and not get stopped out by pro money gunning for the usual places where stops will be hiding.