It’s been a busy week for some traders. The following is a perfect kill with two shots to the ‘head’. The sceptical will argue that this is luck. But the topic of luck and chance will be explored further in another post coming soon. What is not shown in the 4H chart is the daily situation with Oil. See below, where snipers were watching carefully a powerful zone of horizontal resistance on the daily charts. Using a well developed system of spotting trend changes, a short was entered on the 4H (see above). But note also that after the first big plunge the trader added to the short, increasing position size (tiny red downward pointing arrow). Some will say that’s gambling because the RSI is already on the floor. But there is a thing called experience and knowledge of the behaviour of your market. You can’t see that in the analysis. The RSI rules nothing. You can see from other deep plunges of price to the far left that price rebounds and then falls further. So it was reasonable on the pattern and the probability to enter a second short with a tight stop, just as the RSI began to recover. The exit point was well defined as a deeper plunge of the RSI and the edge of the Daily trend line.
So what does this all mean? Does it mean that the trader can predict what’s going to happen? Absolutely not!! The difference between prediction and expectation was explored before.
- Stalking your prey carefully is a useful thing.
- Knowing the behavioural patterns of the prey is important, in determining when to strike.
- Changing perspective to higher time frames is important.
- Knowing how to use the RSI is important, whilst recognising its limitations. A tool may be blunt but it doesn’t mean it cannot be used in certain circumstances, depending on the task.
- Following a strategy – not a rule book – is important.
- Avoiding greed and taking profits according to strategy is a good thing.
- Probability has nothing to do with prediction, because probability cannot place an event at a particular point in a future time.
- Synthesis of experience, knowledge, probabilistic thinking, discipline and control of the enemies make for good trading.