Avoid What is Strong – Strike at What is Weak!
So in war, the way is to avoid what is strong and to strike at what is weak.
… Sun Tzu, The Art of War
Trading is not about prediction.
Instead we let the marketplace reveal it’s plan and attack only when we see an advantage.
We play the game on our terms, or not at all.
Orderflow drives the market; orderflow that comes from the decisions and actions of all other market participants competing in the same arena as us.
Let them drive price where they will; as determined by the collective sentiment of all who comprise the marketplace this day.
We simply observe. And wait.
Like the lion who waits patiently to attack the weakest in the herd, we avoid the market when it’s strong and strike only when it shows it’s weakness.
Trading is not about prediction.
It’s also not about emotional reaction once we perceive weakness.
Our awareness should always be ahead of price (see the “Projection Phase” in this article) maintaining IF-THEN scenarios for likely future price action and what it means to those who hold trading positions.
Through maintaining these IF-THEN scenarios our reaction to the market movement will be preconsidered and decisive.
We attack when we see weakness.
We attack when we see someone trapped against the real bias of the market.
We attack when our risk can be contained.
We attack when we perceive potential opportunity greatly outweighs the risk.
Let’s start by looking at the structure of the E-mini Russell as at the release of the FOMC Statement on Wednesday.
My higher timeframe is the 5 minute chart, but we’ll commence first with a 30 minute chart in order to see a few days of data so that you have a wider perspective.
Zooming in to my usual higher timeframe (5 minute chart)…
And now the trading timeframe (1 minute chart) (*Note: The concepts discussed in my articles apply to all timeframes. If you use different timeframes from me, just scale up as required.)
Let’s now move forward a few candles at a time to see the outcome.
Trading is not about prediction.
Our awareness should always be ahead of price maintaining IF-THEN scenarios for likely future price action and what it means to those who hold trading positions.
If price fails to act in accordance with our expectations, then we adjust our IF-THEN scenarios.
But if price does validate our expectations, we can act in a preconsidered and decisive manner.
In the above trade example, initial signs of bullish strength led to expectations of a bullish trend.
- IF bullish strength continues as price drives higher and pullbacks show weakness THEN opportunity will be sought LONG on a failure of the weaker pullback.
The pullback was strong, invalidating this plan.
Strength showed towards the bearish direction.
- IF bearish strength should continue through the Intra-Session Low and any pullbacks show weakness THEN opportunity will be sought SHORT on a failure of the weaker pullback.
- But IF a break of the post-news low cannot continue lower THEN this will be a sign of bearish weakness meaning that opportunity can be sought LONG on a failure of the breakout.
Weakness on the break invalidated the first scenario and confirmed the second.
The way is to avoid what is strong and strike at what is weak.
- Trade at good structural locations which afford the potential for multiple-R follow-through (see here for my setup locations).
- Watch for signs of weakness against the bias (see here for Momentum & Strength/Weakness analysis).
- Avoid what is strong!
- Strike at what is weak!
Good trading,
Lance Beggs