Better to be the active rather than the defensive trader

To be the active trader, always preferable to the defensive trader.

More on Hans Zimmers idea of questions and answers and how it relates to financial trading.

We need to be on the watch for the smallest of hints that something isn’t quite as it seems.

A question or three

The currency markets we trade have been in a bear trend for some time. Meaning that all the ‘answers’ are short trades and all the ‘questions’ are long trades.

We want to be going short where possible. However, this ought not to make us blind to the detail. If we get the detail wrong, this is not necessarily a losing trade if our stop is sufficiently distant.

But getting it wrong can concentrate our efforts on managing the loss which in turn creates missed scalp questions and lost entries to better-placed answers.

Short entry price action but context says different

A couple of days ago from early morning each of the markets provided short entry price action opportunities. Each was answers. Therefore they had swing potential.

However, if we take a closer look at the conversation prior (the context of the chart), we notice a wedge or three pushes.

If we had missed this observation, we would have been distracted, mainly Euro and Ozzie dollar, for some 30 hours managing an out of the money trade.

The pictures below are the same stories for the EUR and AUD. GBP has a similar connotation but is in a trading range and therefore only provides questions.

What kept us as an active trader

AUD/USD wedge probability long but wait for an entry bar.
AUD/USD wedge probability long.
EUR/USD wedge probability is long but wait for an entry bar.
EUR/USD wedge probability is long, but we wait for an entry bar.
GBP/USD wedge and a trading range.
GBP/USD wedge and a trading range.

It is unusual that all three screenshots provide the same clue. A pullback is now probable. In all cases, the ‘actual’ pullback was a 100 pips or so. We wait, however, as these pullbacks are questions and we need an entry bar first to trade a question.

Active trader in EUR/USD

If we look at the EUR/USD in more detail, we see that we have a possible expanded wedge, being three pushes, as well as the embedded wedge; and adds confluence to a low probability short.

Notice the pullback, marked by the green circle, closed slightly above the resistance level of the past half dozen bars; this improves the odds of at least a measured move (a scalp) up to the green horizontal mark.

Three pushes big picture and embedded gives confluence.
Three pushes big picture and embedded gives confluence.

The next screenshot is four hours later. It follows our analysis and more importantly, we are not distracted managing an out of the money trade – we have a win and are viewing price with an active rather than a defensive perspective.

We make the measured move long. Active rather than defensive
We make the measured move long.

 

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