By Cliff Clark
“Anticipation”, no I am not talking about the Carly Simon song, I'm talking about entering a trade early. The question is when should we anticipate and what exactly do we mean when we use the term.
I had one of the traders I work with ask me why can't we anticipate a pattern or strategy actually hitting. He understands how we anticipate an entry in the trading room where we might watch level 2 and jump in at the moment we think the pattern will hit but he wonders why we don't anticipate the pattern actually hitting before it happens.
The question is easily answered with a question. Do you really have a pattern before the pattern completes? I would argue no. If I am waiting for a three-bar play to form on TSLA and it's still two dollars from where the pattern completes the setup, I am really just gambling if I enter at that point. So I would say no, as pattern traders this is not a valid way to enter trades.
The only caveat I would add is that if you wanted to run a test of how you plan to take these anticipation entries and the data shows that you can make a profit doing it, then by all means take those entries. As for me, I will wait for my patterns to form and stay with what I know works in the long run. I'll leave the gambling to those in Vegas.
2 trades for me today with +1.5R total
1st Trade QCOM +2R
148.39/149.97 exit 143.25
12% gap down under pivot support and 50ma after a strong daily double top rejection,. I took it on a congestion breakdown with a fairly wide stop, leaving my 2R target 50c over its ATR, slow but consistent move down with great RW, hit my target on the penny before it bounced.
2nd Trade AQB -0.5R
9.40/9.70 exit 9.56
I rarely trade stocks under $10 and even more rarely short them. I liked this daily chart as it broke its uptrend channel and stayed under a strong 9.50 support line enough room to its daily 50ma. I entered after a pullback with a fairly wide stop but only 1/3 of its ATR used at the time. It failed to break down with the strong market open and stayed in a narrow range.
I actually broke my plan with this trade as I lowered my stop to a pivot where price made a big bounce earlier at 11am with a large seller sitting there. My thought was that if it breaks that level again then it will likely...
1 trade for (-1R)
I took a BD on QCOM. I was worried about the target being close to the daily range, so I took a tighter stop on the 2 min chart. I am looking through PTS right now, most of the examples have 2 options for where to put your stop. It looks to me like one of the stops would be at the bottom of the main consolidation area, and the other at the bottom of where there has been a shakeout or turnaround bar (if there has been one). Due to the daily range I took the tighter one on this. In hindsight it seems obvious to take the wider stop, but in the moment it looked ok.
I was then looking at the 15 min 3BP on QCOM, but the reason I used a tighter stop in the first place was because of the range. The 15 min 3BP would have needed to have gone even further than the wider stop on the 2 min BD, so I didn't take it.
