But why is it important to wait for PA confirmation instead of just jumping into the trade upon a pattern or wave completion? This is a counter-trend trade so you are looking to go AGAINST the prevailing trend. If you don't get it right, you might get run over by the trend! Who's to say it won't just keep going up? Sure, if you enter upon a , you have very well-defined levels to place your stops but sometimes, that stop can be pretty large! In this case, if playing a sell off the completed bat, your stop should be about +50 pips. But if I wait for PA confirmation, my stops can be as little as 10 pips here! Thereby increasing my R:R dramatically.
You'll see on the chart above, I've dropped it down to the 30M TF in order to more clearly show what I am talking about here. In real-time, I know what I'm looking for so I usually just stay on the 1 HR or above TF. But for the sake of clarity, I'll use this lower TF.
For example, in this pair right now, I'm looking for PA to tell me it's "safe" to get SHORT. When I say "safe", I mean higher probability of a down move coming. Not 100% that it will go down.
The 2 types I show here are pretty good type PA's (I color-coded them for easier identification). But by no means are the only types. What is important to know is that both these 2 types of PA will allow you to get in with minimal risk. If you see this kind of PA, then of course, your stops can just go above the points where the PA would be proven wrong.
The PA in the brown color is more solid since it actually also would break the lower TL of the ED. Which is in itself already a type of PA. Upon a retest of the TL and failure to break back above it, that would be the better PA to sell off of.
I'm NOT saying either one of these PA's will happen. I'm just giving examples here of what COULD be good price action to get into the trade on the SHORT side. But even PA is not any kind of magical tool. It works most of the time but not all of the time. But using proper PA, you'll reduce your risk in a trade because at least you will have price action in your favor. Not against you.
Please keep in mind that I am not giving any trading signals or trade calls here. Only providing my own trade thoughts for your benefit and insight as to my trading technique and style. Please don't ask if you should or should not take the trade or ask for stop loss and take profit levels. Any SL or TP given on my trades are my own I have used for my trade and are not recommendations for you to use. If you are not sure, then you do not have a trading plan for yourself in place. I suggest you make one before you continue to do any trading!
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