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How To Trade Against The Weak Money

traders start to close their positions after that soon

BREAKING NEWS - Mon March 5, 2018

In the case with a “weak money auction”, the potential of the move to continue diminishes as the price reaches the next reference - usually, an intraday high/low or a previous day’s high/low. It doesn’t mean that price would immediately reverse after reaching the mentioned point, but there you can build a counter-trend trade with a very limited risk (like it is shown below):     In the second example, I’ve taken the low from US session of a previous day. This is done so because the low of a previous day was quite far from the recent price action, and it would take more than a short-term mechanical impulse to get there. How wide should the area for a trade location be? Normally, I take the value of ATR(21) and add it to both sides of the reference point like it is shown below:     Stop-loss, in this case, may be placed beyond the area, which you build with the help of ATR(21). The lot size depends on your money management rules and should be calculated before you enter a position.   When the “weak money” wins   Sometimes it is not wise to oppose the mechanical selling or buying. You may already guess, that I’m talking about going against some intermediate-term trend. If you had one on the chart, it’s not recommended to go against the mechanical activity - such a trade might look as an easy one, but in fact, it’s not. Just take a look at the example below. Price was declining very quickly and in spite of a mechanical “selling tail”, there was a notable continuation after that. “Weak money” were acting under the protection of a strong trend (big money), that’s why it was unwise to oppose them back then.   So, be careful and manage your risk! In case you have any questions on the material published here, feel free to send me a request from my blog (accessible by the link in my account).   Good luck!

Trading the financial markets is associated with increased level of risk. Past performance is not indicative of future results. All materials are provided for educational purposes only and by no means may serve as a trading or investment advice.