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The document provides a strategy for taking advantage of situations where the market does the opposite of what most traders expect. It explains that when a major support or resistance level is broken, many traders will jump in, but the move sometimes reverses. The strategy is to have a Plan A to trade with the crowd, and a Plan B to trade against the crowd if the market reverses. An example is given where the market broke support but then reversed up, allowing one to profit by closing a short position and going long instead. The key is being ready to exploit obvious failures of patterns that many traders are watching.

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64 views

Fail PDF

The document provides a strategy for taking advantage of situations where the market does the opposite of what most traders expect. It explains that when a major support or resistance level is broken, many traders will jump in, but the move sometimes reverses. The strategy is to have a Plan A to trade with the crowd, and a Plan B to trade against the crowd if the market reverses. An example is given where the market broke support but then reversed up, allowing one to profit by closing a short position and going long instead. The key is being ready to exploit obvious failures of patterns that many traders are watching.

Uploaded by

Anonymous sDnT9yu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

Brought To You By

http://www.tradingforbeginners.com

How To Nail The Market When Everyone Else Is Wrong

Picture the scene – you have done your analysis and have been waiting for the breakout
of a range. You might even have identified a head and shoulders or double bottom. So
anyway, you have a trade all set up and you are just waiting for the move.

Let’s say you have identified a rectangle and are waiting for the breakout. You have your
orders set up so that if it breaks up you are automatically taken long. You’re trading an
hourly chart so you are checking it frequently to see if there has been any movement.

Suddenly- bang- the market starts motoring up. Your buy stop takes you long and you are
sitting pretty. You start to watch the market and check to see that your stop loss is in
place. Then suddenly without warning the same bar that made you feel like you should
start counting your money turns around and heads back down.

As it heads back down you just know it’s going to take your stop - and it does. Now you
no longer have a position. You start to look around for another entry or setup to get a
trade on: but wait – we just missed a huge opportunity.

In this lesson I want to explain a great way to benefit when everyone else is wrong.
Here’s the theory. Most trader are very single minded when they trade. They get an idea
into their head and it stays there.

Once they have decided they are going to go long on a breakout they generally stick with
it. This is particularly true of well-defined technical levels like the 52-week high or low.
It could even be a trend line or chart pattern. The thing is, it could be anything.

If you follow only one or two markets you will know what I am taking about. Even
though you shouldn’t listen to other traders you will probably have a fair idea of where
the major support and resistance levels everyone is watching.

Remember also that trading is as much about the study of human behavior as anything
else. Once one of those big levels breaks everybody and their dog will try and get on the
right side of the move. This is where we come in – listen up, this is important.
When The Market Doesn’t Do What You Expected It To Do, Chances Are It’s Probably
Doing The Opposite.

For example – lets look at our greedy little friends who went long on the breakout and got
wrong footed. Some of their stops will have been taken and some of the kamikaze crowd
without stops will be filling their pants. This is exactly where we jump in – when
everybody else is exercising damage control.

To take advantage of this we need two plans. Plan A and Plan B. As you probably
guessed, Plan A is to go with the crowed: if the market breaks in the direction you first
assumed it might, then you are there. You have an entry point, a stop loss level and a
probable target already worked out.

Plan B is where we excel. If the market breaks the other way, we also have a plan.

In the chart above you can see that we had a down trend followed by some consolidation.
The market first went down to form support and then headed back up to the upper trend
line.

Now very often consolidation will break in the same direction as the trend, so it wouldn’t
be unreasonable to expect the market to break down, which it did. This would have taken
us short, with a stop probably at the previous resistance and a measured target on the
down side of the difference between the support and resistance.
This is what happened next.

Instead of continuing down the very next bar became a reversal bar.

Side Note: For the two period reversals up, the first period should be at the end of a
strong down move. The close should be near the low of that period and it is preferable
that this low is a new recent low. The second period should open near the close of the
first period and should regain most if not all of the first period’s losses and close near the
high of the first period. There does not need to be a reversal bar for this to work. It just so
happens there was one in this example.

So now the market is doing exactly the opposite of what we expected. Being the
opportunists that all good traders should be – we close the short position and open a long
position with a stop below the low of the failed breakout.

We are now long the market with a stop loss in place - but we need a target. The first
target I would head for would be the previous resistance. The reason I would choose this
is simple. We may be headed into a long period of consolidation and the price might start
oscillating between support and resistance.

However as the failed breakout also happened to be a two period reversal, I might keep
the long and just monitor what happens at the resistance level. Depending on market
conditions I might also have an order to add to my long position.

The important thing here good buddies, is to always be ready to exploit what the market
is doing. When you see an obvious failure of a - trend line, support/resistance or a chart
pattern, have a plan in place to take action. Don’t just watch it – exploit it.
I know some traders who only trade this way. They watch for easily identifiable patterns,
which everyone is watching and exploit the failed move.

The complete set of trading lessons is only available at


http://www.tradingforbeginners.com

Good Trading

Best Regards
Mark McRae

Information, charts or examples contained in this lesson are for illustration and
educational purposes only. It should not be considered as advice or a recommendation to
buy or sell any security or financial instrument. We do not and cannot offer investment
advice. For further information please read our disclaimer.

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