Messing with Counter Trend Traders
Nobody likes uncertainty. In addition, when you are uncertain, and restless — you make mistakes. Emotion and jittery kicks in which makes situation even worse.
Here is a dictionary definition
“vague; indistinct; not perfectly apprehended”
If you apply that feeling to your trading set ups, it usually happens when you are against rest of the market. Traders who like to play counter trend moves are looking for those over-bought and over-sold levels to capture tops, and bottoms respectively. Definitely, there are opportunities for scalping, but let us be honest — it is damn difficult to trade against the market sentiment. You wait half day for that possible top to occur so you can short and get your 20 cents. If it gives you that is.
For the sake of explanation, let us assume that the market has been trending up. In that case most of the counter trend traders will wait for the first bearish bar to appear. We call it the ‘Set up bar’ or ‘Set up candle’. As this first bearish candle appears after the run up, we go short one tick below the set up bar.
The yellow shaded zone is the ‘Uncertain zone’ where you are not sure whether to take your stop-loss early or at the high of the set up bar, or keep the position to see if it breaks down further to give you a profit. Usually traders are very sensitive to any price movement in this area.
Here is what happens next. If the bullish bar shows up inside the uncertain area, we as traders become jittery. This is because the price is moving against us not long after our entry. It shows that even scalpers are having a hard time generating profit. As the price moved above the bullish bar, few traders started bailing out. It resulted in short covering and even more upwards action.
If you picture this situation, you will understand how the profit started turning into a loss once we saw those bullish candles. The short bias we had going into our position did not work. Therefore, to be a smart trader — we will act as a force that pushes these uncertain traders to get out. That is the set up we will look for and trade.
How to find uncertain traders?
A. Look for counter trend set up at the top of a bull run or the bottom of a bearish move.
B. Once the counter trend set up candle is triggered, mark the area between setup candle’s high and low as ‘Uncertain Area’.
How to Trade this uncertain zone?
Going to give a real life example of a Bullish uncertain setup and how to trade it. Below is a 10 min chart of $JD from Feb 22nd, 2019.
A. Bullish uncertain zone (yellow area).
B. Wait for a Bullish price candle that overlaps with the Uncertain zone.
C. Place a Buy-stop order couple of ticks above the high of the bullish setup candle.
D. Cancel the order if the next bar does not trigger it.
(The opposite it true for Bearish Uncertain setups)
In my experience, these uncertain time zones are not reliable in shorter time periods. I have found success in 10min & 15min charts. This set up attempts to profit from failure of counter-trend traders within an uncertain area. We try to capitalize by trapping emotional traders, who are stuck at the top of a bull trend or bottom of a bearish move.
Hope you are able to find some setups that meet this criteria. If you need a private 30 min meet up to go over the tools & scanner that I use for finding Price action set ups, please reach out to me at email@example.com