A common misconception about trendline and Technical Analysis, in general, is that,
Traders draw lines that they wish to see.
When Trader is bullish, they will look and draw support that might not even be there.
This cognitive bias is one of the major downfalls for traders who employ Technical Analysis.
Just because you can draw a trendline, does not mean that the trend will be obeyed 100%. It just means that there is a higher probability of a rebound. If your strategy involves buying at trendline support, chances are that your overall trade winning percentage will be in your favor. Once you are able to obtain this winning % number (through backtest and forward test), you can then employ money management to ensure positive expectancy.
The trendline does not indicate that price will guarantee a rebound ON THIS TRADE and you can throw your entire life saving into it.
If you understood this concept and is willing to accept the reality that trading is nothing but a game of probability; congratulation, you have what it takes to be profitable.
Let's move on to Alibaba!
We have reached the Apex Point (200-220) in which the Uptrend Line intersects the Support level. This the point at which most traders believe the price will rebound. Will the price rebound? Probably. Can it also not rebound and continue to head down. Also probably.
If it does head down, the next support is at 170.
Here, you can make two decision
1) Go for the trade at 200-220. But you have to account for the probability of the drop to 170. Hence your stop loss should be below 170. Your lot sizing and risk will be base on stop loss at 170 instead of gambling on the chances that price rebound straight from APEX.
2) Wait for Price to retrace close to 170 to get a better entry. But this carries a risk of a missed opportunity because the price can indeed rebound from the apex point and you may miss the trade.
Hence there is a 3rd option
3) Go for half of your intended position at Apex Point, and the other half somewhere near 170. Ensure that your risk assume both trades will be executed (worst case scenario)
And right here, we have a trade setup that
1) A balance bias-free view.
2) Able to handle the drop to 170
3) Profit if the price goes up from the apex
4) If the price drop, you will be able to take advantage of the lower price
5) If the price crosses below 170, then you cut loss with an already determined risk
Isn't this a better approach better than
"I will buy because I believe it will go up"
Traders draw lines that they wish to see.
When Trader is bullish, they will look and draw support that might not even be there.
This cognitive bias is one of the major downfalls for traders who employ Technical Analysis.
Just because you can draw a trendline, does not mean that the trend will be obeyed 100%. It just means that there is a higher probability of a rebound. If your strategy involves buying at trendline support, chances are that your overall trade winning percentage will be in your favor. Once you are able to obtain this winning % number (through backtest and forward test), you can then employ money management to ensure positive expectancy.
The trendline does not indicate that price will guarantee a rebound ON THIS TRADE and you can throw your entire life saving into it.
If you understood this concept and is willing to accept the reality that trading is nothing but a game of probability; congratulation, you have what it takes to be profitable.
Let's move on to Alibaba!
We have reached the Apex Point (200-220) in which the Uptrend Line intersects the Support level. This the point at which most traders believe the price will rebound. Will the price rebound? Probably. Can it also not rebound and continue to head down. Also probably.
If it does head down, the next support is at 170.
Here, you can make two decision
1) Go for the trade at 200-220. But you have to account for the probability of the drop to 170. Hence your stop loss should be below 170. Your lot sizing and risk will be base on stop loss at 170 instead of gambling on the chances that price rebound straight from APEX.
2) Wait for Price to retrace close to 170 to get a better entry. But this carries a risk of a missed opportunity because the price can indeed rebound from the apex point and you may miss the trade.
Hence there is a 3rd option
3) Go for half of your intended position at Apex Point, and the other half somewhere near 170. Ensure that your risk assume both trades will be executed (worst case scenario)
And right here, we have a trade setup that
1) A balance bias-free view.
2) Able to handle the drop to 170
3) Profit if the price goes up from the apex
4) If the price drop, you will be able to take advantage of the lower price
5) If the price crosses below 170, then you cut loss with an already determined risk
Isn't this a better approach better than
"I will buy because I believe it will go up"