7/25/2019 SLA notes

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As for "risk aversion", that is no longer a factor. You're 75pts in profit. There is no risk. Any concern about risk means that you're thinking about your trade, not about price behavior. Focus on and correctly interpret price behavior andthe "risk" takes care of itself.

Granted, if one is new to this, these statements sound great but have little practical value if the trader's beginning to sweat. There is a middle ground, shownhere again with the hourly and a tighter DL (this helps to highlight the difference between a demand line and a trend line). Yes, the tighter the DL, the sooner one will be "stopped out". And the tighter the DL, the more likely the traderwill be to miss a continuation. But that's the cost of trading out of fear.

And here is where the trader has to do some grunt work. And he has to do it himself because the results will vary according to the instrument traded and the interval used.

Start by collecting at random twenty charts of whatever you're trading.

Plot the DLs (or SLs, if the trend is down).

Note where price breaks these lines.

Note what happens when price breaks these lines: does it move laterally or doesit move in the direction opposite to the previous move?

If it moves in the opposite direction, at what point does the probability of a reversal increase and the probability of a continuation decrease? Once you know that, "instinct" is irrelevant. You have statistics on your side and can make reasoned decisions, not gut reactions arising out of fear. If the results are unclear with twenty charts, select another twenty. A hundred is more than enough.

A lateral range is suggested the same way a diagonal one is: two swing highs with an intervening swing low, or vice versa. The upper limit was "established" onMonday. The intervening swing low at 22.75 was not tested until yesterday, and price dropped all the way to 14. The upper limit has since then been "clean". Thelower has not. But as the trades are taken off the upper, the lower really does

n't matter unless one isn't trading live and has to set an exit at some number to be tripped in his absence.

The focus should be on resistance and the location of the danger point, not on how textbooky the range is. The trader then has to decide how much he's willing to pay to play, the "price of admission". If he's not willing to risk anything, then he's better off passing on the trade and collecting data instead.

Trading the entry live makes a lot of difference. Live one can easily see the failure at 56 at 0945 NYT, even if one is watching only the houly. There is a reton the 1m at 0950, but, if one isn't trading live, it isn't going to do him anygood. (An entry below this would mean a 7+ pt risk)