Trailing stops from optimal entry zone are hitting.
Filling optimal short levels - by HoleyProfit (substack.com)
We have two main risk swings to watch out for here. Marked in red is a shallow one and marked in blue is a deeper one.
The deeper blue one would be liable to be parabolic and it’s something shorts need to be aware of the risk of.
Deep blue one would be the preference for ease of following positions. If we keep following basic bear trend patterns we should keep taking the basic bear trend entries but before a big move comes to the bear side usually something horrific has to happen to bears. A flash move that is incredibly strong.
I’d feel much more comfortable building up a big short after seeing a move like that. My experience has taught me building up big shorts before this happens always makes me liable to take my largest short positions just before this. If I do well, I hit stops early. If not - well, that’s where the lessons come from.
Trend is trend. If we continue to make lower lows and lower highs we should follow this, but in a range like this that’s not featured a big spike we should always be cautious when the lower highs start to fail we might be due a spike. It can be aggressive and often is news driven.
The opportunity costs of being incorrectly short into the spike are incredibly high. You do not just lose on the short, you also lose the spending power and willingness to bet on the much better short opportunity. In a classic reversal most people will be spiked out just before the big short comes.
Here’s an example on a small chart and also highlighted are the points where we may be and the big obvious bull candle I’d feel much better after seeing.
The shorts after this bull candle would be simple and painless. On a big chart we’d usually have at least three 4 hour candles at the top and more often 3 daily candles. Giving us at least half a day to spot this, position early and make a plan to enter into the following drop.
Really good opportunities would come after this but if you’re short at the wrong time, you do not want to take the short at the right time. You have low pain tolerance at the higher level and if it does not work first time you’ll usually get squeezed out right before the move. That’s just how it goes.
If you have a short only bias all the way through blue, you can not survive red. Certainly can’t go big on positions into the optimal areas. It’s too daunting.
If you remain paranoid about this and look for all the natural bear failure/exit zones and places to pick up tight stops longs you can benefit from this trade and be in a strong position when we get to optimal short levels. This is the most practical way to deal with this.
In my research of crashes and in my practical experience trading large reversals I’ve found ,making money in the crash is easy - but being able to be in the big positions at the right time is much harder. It’s probably the case most bears will be stopped out before the drop - the real question is when and where rather than “If” on that one.
Trend is trend. If the obvious bear patterns continue we’ll revert to bear plans.
But if these stop working, there might be the squeeze. Life would be so much better for bears after the squeeze, assuming they were not bears during the bulk of the squeeze. A big mega candle on the daily chart would be ideal.