Why does it work this way?
We all grow up asking the same question at least a million times in our lives. However when it comes to stocks, trading, and money we somehow forget to ask the very same question.
You see a Pin bar and you anticipate reversal because that’s what a Pin bar represents, right? It represents the change in trend–now think about it, why this trade would ever have to work out.
But the big question is, for the rest of the market and its participants are they watching the same Pin Bar that you are watching, and what do they think about it?
All you can do is place your trade and hope for the best.
What if other traders at the same time happen to watch some Fibonnacci level playing out and they were all deciding to go in other direction. The end result would be that you would feel betrayed by the market, because you had set your expectations for its movement in certain ways.
We are born and brought up thinking logically to expect that 2 + 2 = 4. That’s how it is and it always remains. We take the same mindset toward trading: Pin Bar = Reversal = Profit. Well, we all know how that can work out! Bottom line, in reality market throws all the common wisdom out the window!
So, given that this scenario is the problem, then what’s the solution?
Honestly, I don’t have one for the Pin Bar method but I do have something even better. And that’s the AAA strategy.
You may then ask: what does AAA stand for?
The most important word here is “Acknowledge.” Let’s explain that with the help of an example:
Notice how the market made a resistance area on the day prior to our current day, separated by a vertical line. In the current day’s price action, we see the price move towards the resistance area, testing its level and retracing its movement. Later on, we see nice big candle breaks out and the subsequent rally.
What does all of this mean for us?
The core concept behind AAA Strategy is acknowledgement (ACK) of market participant of the price level which we have determined to be a key level for a breakout.
The core concept behind AAA Strategy is the acknowledgement (ACK) of the market participant of the price level which we have determined to be a key level for a breakout. Without the ACK we don’t know whether the market is in sync with our analysis.
Once we know that current market participants have also determined a certain level as being at Support or Resistance, then when the price breaks out we can trade with confidence, knowing we may have tons of other traders behind us pushing the price in the same direction.
Not every breakout will work that simply, and there will be fake breakout situations. But we have a much better way of determining which breakouts have a higher probability of working. We can ascertain this simply by looking at market momentum. Yes, the same old momentum!
Stocks and futures have a big advantage over the Forex market, because they provide “Volume” data. Since those markets are centralized, the overall volume can be put together and can be used to analyze the strength of the breakout. We have a no such luxury as Forex traders.
So I asked myself, “How can we work around it?” What information can the market provide which can help us determine market momentum? Research into that leads me into our very successful entry method on the 15 minute charts.