When The Best Trading Setups Fail

Sep 07, 2020

I got a lot of emails and DM's from traders asking me my thoughts on where the market is going to go from here, what's my price target?

The truth is, I don't look at markets that way. When I got long $NQ Futures back at around the beginning of April, I wasn't planning to be on the doorstep of 10,000 NQ by summer.

And to be clear, this is not a victory lap of me catching the bottom and piling in long from the very bottom and buying a Lamborghini. Nor was this a VBO or FVBO trade, this was me applying my knowledge of price action and how it (price) behaves in different market regimes

Me getting long on April 5th was not expected to be a 2000+ point winner (updated to 5,000 point winner), with multiple adds to my positions. I had no special perspective on where I thought the market was going to go and I certainly didn't expect to be putting in new highs with all that is happening in the world.

All that is happening in the world and what we were dealing with on April 5th had nothing to do with my decision to get long. The news had 0% to do with any of my decision, the recency bias of what just happened in March, had 0% to do with my decision to get long. 

And this comes back to how I do all my trading, let me walk you through what my decision making process was at the time and how it adapted as we went higher. 

At the end of March there were a couple of things on my mind, first was the Bull Volatile market regime that we had just RAPIDLY departed from a month ago. 

A Bull Volatile market regime is REQUIRED for a major market top, among other things. So that signaled a lot of credibility to the fact that the April bottom formation might just be a tradable counter trend bounce before we head lower. To be clear, I wasn't a perma-bull when I put this trade on, but I do know the market is built, by design, to go higher in price over time. 

Next I annotated the complex double bottom pattern that I did not trade. I missed the bottom, yes I suck and you should tell everyone you know that I suck!

Actually even though there was a tradable setup the risk parameters were too high for me to trade even 1 contract. So had I even wanted to buy, my risk management wouldn't have allowed it. 

None the less, at this point I was queued up to look for reasons and ways to get long. 

Next we get a shooting star type of candle and a double top variant there, this is THE BEST looking sell setup I could imagine. It's a gift, this is every excuse to go short, in the world, this is the easiest top tick for the next leg down in the worst bear market in history that everyone is calling for...and it fails. 

Well to be clear, it worked for 2R, which is really good for traders who understand risk management and mean reversion strategies, but not what every.single.market.pundit was calling for. 

When the market turned up from there instead of going limit down and printed a bull bar this is when my slow moving mind realized that bulls have regained control. 

I could've taken Jerry Powell at his word and just bought when the fed stepped in but, as mentioned, I don't pay attention to the news and things like that. 

But I saw my opportunity to get long. 

Using the techniques in the Consistently Profitable Trader course I let the market pull me in long and using my position sizing techniques from the Systems Mastery course I had much better risk management and could size the position appropriately. 

Once the price action confirms the market regime we are in, we can apply the correct strategies to take advantage of the environment. 

For me, I was more than happy to continue to add to my long position, almost lazily, as each of the most obvious market top short setups, FAILED.

It's rare that I do step away from my FVBO/VBO strategy and take a more discretionary trade but when I do this is the sort of outcome I'm after. 

I don't know when this trade will end, but I'm holding long and will continue to add when the setups present themself. 

This was from an email I sent out to subscribers on June 7th, 2020, as of September, we are still long this trade. If you want to learn more about this and get these types of updates SUBSCRIBE to the email list, it's FREE!

Trading is a lonely job, especially now that we are all quarantined. If you want to trade right along with me and a bunch of like minded traders, join the Trading Lab, it's a Slack Channel of high level traders at Hedge Funds, Family Offices, Wealth Managers, Analysts, Prop Traders and individual traders all helping each other out. 

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