Why I am not afraid to trade the highs and lows

Looking around on the web, I found a video explaining why a trader shouldn’t trade the highs or lows and it gave me pause. Since the market is consolidating 70-80% of the time, I actually prefer to trade the highs and lows. Why wouldn’t you look for opportunities at the highs and lows?

The short answer is you don’t have a solid method for determining whether it’s a breakout of consolidation or a return to the mean setting up. If you don’t have a way to counter-trend trade as well as trend follow, you’re leaving money on the table.

When a person first learns to trade actively in the market, they’re bombarded with indicators of various stripes that seem to make sense and end up being accepted because of a lack of understanding of what drives the market. A new trader doesn’t know that he doesn’t know and adds studies, stochastic oscillators, moving averages, and other convoluted derivations of past price action.

***NEWSFLASH*** Price is only half of the information.

I’d be afraid to trade the highs and lows too, if all I had to work with was price information. I’m not dismissing price action or its uses in trending markets, but I’ve sat through numerous days of low volatility getting useless price signals. You need an exceptional tool to make good use of those kinds of days.

As far as the highs or lows are concerned, the frustration of waiting for a price-based indicator to cross or “domino” before you take a long or short is amplified by the common occurrences of the move being over, or worse yet, a false breakout of consolidation leaving you as the chump who bought the high or sold the low.

My trading partners and I frequently step in front of moves and capture a good profit before trend followers hop in and boost it further. How? We can see resting inventories of supply or demand at certain price levels and thus have a huge advantage in gauging the strength of the move which allows us to join the auction in the right direction with much more confidence. That’s the power of Delta Volume Analysis.

I personally believe that understanding Delta Divergence combined with appropriate risk management can take a person from “novice” to “quite adequate” in a very short time.

Are we always right? No, of course not. We do not have predictive tools, we have probability tools. However combined with astute risk management, we are close enough to “right” to make it worthwhile and to judge the odds of various entries. We’re proud of what we have to offer. Certainly we’re a bit biased, but we’re biased from experience. These ideas have a lot of real-world miles on them. Maybe they can help you. Take a look at some of our videos, see what you think, and feel free to email us with questions.

Final note: If you want to see the math behind the more popular indicators, you can google Welles Wilder’s numerous works or Chuck Lebeau and David Lucas’ “Computer Analysis of the Futures Market” and gain a deeper understanding of how to use them to effect. Just understand their place and don’t expect them to deliver what they cannot.

Cheers,

Fulcrum Focus