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.
The first short on this chart is the confluence of 3-day old gap, S2 and my RES 2 level and the sooner you enter, the soon you can get risk free, which allows you to take another trade on the Igloo/TL break. Waiting for confirmation and being generous with the SL on the Igloo/TL trade turns a 2:1 trade into 1:1.
Although it’s counter-trend, we take this because the move is in an exhaustion phase and has happened ON so the cash market probably needs to catch up. If you wait for some buying, you cannot get 1:1 before the trade reverses at the 169 and BNR. The second long at Weekly S1 works anyway, but nevertheless, a faster entry reduces your SL and multiplies your R:R
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