Chapter 26
Need Two Reasons to Take a Trade
Some basic rules make trading easier because once a rule is satisfied, you can act without hesitation. One of the most important rules is that you need two reasons to take a trade, and any two reasons are good enough. Once you have them, place your order to enter, and once in, just follow basic profit target and protective stop-loss rules, trusting that you will be profitable by the end of the day. One important note is that if there is a steep trend, never trade countertrend, even if there is a high or low 2 or 4, unless there was first a prior significant trend line break or trend channel overshoot and reversal. Also, it is far better if the trend line break had strong momentum instead of just a sideways drift. Remember that bar counting setups are not trend reversal patterns. For example, a high 2 is an entry in a bull trend or at the bottom of a trading range and not in a bear trend, so if there is a steep bear trend, you should not be looking for high 2, high 3, or high 4 buy setups.
Learn to anticipate trades so that you will be ready to place your orders. For example, if there is a break below a major swing low and then two legs down, or an overshoot of a trend channel line, look for a reversal up; or if there is an ii breakout in an overdone leg, look for a reversal. Once you see an outside bar or a barbwire pattern, look for a small bar at the extreme for a possible fade trade. If there is a strong trend, be ready for the first ...
