The Play after a Spike and RangeNormally we see that after a spike or impulsive move the price gyrates in a trading range. This is the zone where most of traders lose money coz there is no clear direction to play. We can observe this situation in all time frames.
In order to play ranges we have to be patient and wait for price to break down the range. See 'A' in the left figure, this is the point where large funds or those who have some sort of information about news or something are buying..let's just ignore who is buying and remember that price bumps out of range. Why dun we buy at A? Coz we dun know as of now that the price is going to reverse back into the range or up. So when do we buy? We buy as price pops back into the range sharply. Here comes our sweet spot 'B' to buy..for confirmation i would look for a bullish candle shown above (u can use your favorite bull candle). Either just buy above the high of bull candle or into the small pullback that follows the bull candle. Stops here should be below the low of bump 'A'.
In case we miss the above play and the price jumps above the range we can look out for small pullbacks that follow. Normally a two legged pullback piercing into the range or touching the ceiling of the range is preferred, in this case I would buy at D. However if price makes a single leg pullback and I find myself in a situation where I can only buy at high (coz trend is very bullish) then I would wait for price to make new high at 'C'. The latter is the least preferred trade as it is much riskier. In these two cases the SL will be below the low of small pullback. For entries I would also look for a bullish candle formation. Yes, it is good to wait till close of the candle and buy above the high of this candle.
In all the three cases we have been trying to minimize our risk. We want our SL to be as closer to our buy price as possible but we also dun wanna stuck in a failure move, thats why we use bullish candle confirmation.
Sometimes our bearish bias stops us from buying at point A,B,C or D. Why? Bcoz of some falling trendline or some previous important peak or resistance line at those levels in some higher time frames. In these cases 1) I would simply miss the trade or 2) I would use strict stops and trail.
The post is for educational purpose and can be applied to any market.
I always suggest to minimize risk and never take risk more than 1-2% of your capital.
Play safe Stay healthy.
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