This is a principle that I have been taught by Chris Capre Why Confirmation Price Action Signals Crush Your Trading Success. It felt very high risk until I saw how entering trades too late damages profits in two ways:
- You need a larger stop (i.e. smaller position) since in most cases the stop will be above/below the most recent high.
- The trade is less likely to work; since most of my trades use a 10pt or 12pt stop, if you wait 3 or 4 points to get in, you make it harder for the market to give you 1:1 and reduce your potential R:R of the trade.