The right side of the v is a powerful concept that many traders don’t conceptually understand. Just because prices are the same doesn’t mean the EV (expected value) in each moment is the same. The same prices on the same charts can have drastically different EVs.

Buying Point A, you are fighting the trend. Your probability of success is lower as a result. Your risk is potentially uncapped with no obvious stop. If the stock keeps going down, your reward could become obsolete. I try to avoid buying here. 

Buying Point B, your price is exactly the same. It might look like you’re making the same exact trade as a person who bought Point A. But the key difference is the person who bought Point B is now going WITH the trend. Point B has defined risk with a stop at lows and also a clearer idea of the reward.

CHALLENGE TO YOU ALL: This concept doesn’t just apply to this chart pattern. It applies to many charts. Where might you be making this mistake in your trading? Can anyone give me examples and charts and show me that they GET it?

Post Tags: trading

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