Original subtitles

Position Management In this final module of the course, we will cover the fifth

part of our trading plan, which deals with position management.

Position management answers the question about how much, in relation to the size

of the position, and, therefore, the amount we should risk.

We would also answer the question of up to what point, which covers everything

from the moment of entry to the closing of the position, whether at a loss,

profit, or break -even.

Since this subject is such a delicate one, we will go step by step, looking at

the logic behind each of our movements and for every possible scenario we can

think of.

This will allow us to define as precisely as possible the way we should

each situation and to be prepared when these scenarios appear.

Position management starts from the moment the price is in our trading zone

our potential entry trigger is developing.

We have already performed all our prior analyses and now it is time to take off

our analyst's hat and put on our trader's hat.

Now is the time for action.

Classify trades according to their quality.

First of all, we are going to start with something simple but very powerful,

which will help us later allocate a greater or lesser risk to the trade.

As time passes and you gain experience, you will realize that there are trades

that offer you better guarantees than others.

If you have the ability to identify this sentiment in real time, one way to

improve the risk -reward ratio is to allocate a larger or smaller position

depending on the confidence you have in the trade in question.

One way to put this idea into practice is to define the minimum inputs that

be met in all trades before evaluating the trading approach.

Later, depending on the extra signals we identify, we can increase or decrease

the size of the position.

These minimum inputs form the basis of our entire analysis, identifying

correctly the context.

to know what we want to do, whether to buy or sell, understanding the roadmap

we can infer what the market is likely to do next, identifying the trading zone

where we will wait for the price so we can make our entry, and predicting the

appropriate scenarios according to the current market situation.

This is the minimum we must be clear about if we want to take part in the

market. Without this, there is nothing, and it is the most important thing

because it will help us to both identify trading opportunities, and to discard

those that are not, that are false signs which would ultimately cause us to

enter the market on the wrong side.

These minimum inputs, which cover much of what we have looked at in the course,

eliminate that possibility, so we are almost always positioned on the right

of the market.

This is often overlooked and not given the value it really has, but knowing how

to identify the right side of the market is vital, and something that most

people are unable to do correctly.

With these minimum inputs, we can cover this critical aspect.

And once we have established the minimum inputs, we look at a list of the signs

that will ultimately help us to determine the quality of the

This does have to do with specific aspects of market behavior, and they

differ depending on the trading zone we are in.

We have already mentioned these previously, but we will go over them

more detail to understand what we should and shouldn't look for.

The main element we need to consider at this point is the degree of intent that

the sign -in question suggests to try to determine the level of commitment of

the participants in that direction.

The more of these inputs that are aligned with our scenario, the greater

commitment of the agents in that direction and therefore the greater

the sign.

The five inputs that we need to take into account to determine the quality of

the trade we want to execute are the interpretation of the volume in

areas, The nature of price movements, of the impulses or corrections, the

anatomy of the false breakout, how and in what form it appears on the chart,

whether or not the prevailing short -term dynamic has been broken, and

the sentiment of the market driver, which could positively or negatively

influence the result of the trade.

We will now look in more detail at each of these.

We are now well aware of the difficulty in analyzing volume due to the

subjectivity of its interpretation.

But with this in mind, we are going to apply the hypothesis that the more

textbook of the representation of the volume is, the more confidence we will

have in its analysis.

We are going to use this volume analysis in different contexts, both in the

volume generated during the development of a fast or slow structure and in the

volume seen during impulses and corrections.

We already know the characteristics of volume analysis within a structure.

Therefore, if we see decreasing volume, this is an added input that suggests a

bullish scenario, whereas if we see high volume with unusual peaks during the

structure's development and basically anything other than a pattern of

decreasing volume, this would be an added input in favor of a bearish

With respect to impulse movements and corrections, The theory tells us that to

denote harmony, an impulsive movement should be accompanied by an increase in

volume, demonstrating an increase in participation, and therefore interest in

that direction, while a correction should be supported by decreasing

thus demonstrating a lack of interest in that direction.

Well, assuming this to be the textbook ideal, a bullish impulse pattern with

volume and a bearish correction with no volume would be an added input in favor

of a bullish movement.

while a bearish impulse pattern with a volume and a bullish correction with no

volume would be an added input in favor of a bearish movement.

This is the maximum representation of harmony of the movements, and therefore

will use it to determine whether our potential opportunity is of a higher or

lower quality.

Special mention should be made about the volume seen at the moment of the

breakout of any trading zone, not just in the structure.

Let's remember what we learned previously.

The only scenario we don't want is to see a volume peak at the end of the

impulse movement, which would be followed by another movement in the

direction. This would be an input that goes against the predicted scenario.

By contrast, seeing a volume peak before the moment of the breakout would be an

input in favor of it, while observing a volume peak during the breakout of said

zone should be conditioned by the subsequent price reaction, as we already

Regarding the nature of price movements, We are going to do the same as with the

volume. We are going to identify the most genuine patterns of behavior that

allow us to determine the intent and lack of interest of the participants.

First of all, let's analyze the type of candlesticks that develop.

Candlesticks showing intent represent an imbalance in one direction or the

other. Buyers or sellers have gained control by trading more aggressively

the other side.

It is a candlestick with a large body and a wide range.

whose closing price will be in the final third.

It may or may not have a wick, but if it does, this should be on the opposite

side to the direction of the candlestick.

Meanwhile, indecision candlesticks represent a lack of interest or balance

between buyers and sellers.

These candlesticks usually have narrow bodies and ranges and closing prices in

the middle third, although they may also appear with a wide range and a small

body. In other words, with very long wicks at each end.

Where would we expect to find candlesticks showing intent?

Well, in the movements that are principally impulsive in nature, such as

impulsive movements after a false breakout and breakout movements from

zones. And in terms of indecision candlesticks, where would we expect

appear? Well, in movements that are principally corrective in nature, such

all those tests of the trading zone, be it the test after spring or upthrust, or

the test after breakout.

This accumulation chart offers a good example of these two concepts.

After the development of the spring, good bullish candlesticks showing strong

intent and bearish indecision candlesticks start to appear.

This is the combination we want to see.

And likewise in the trading zone after the breakout.

The comparison is very evident between the strength of the bullish candlesticks

in the impulse movements and the weakness of the bearish ones in the

corrections.

Seeing this pattern of behavior offers us another input in favor of the bullish

scenario.

Here is another example, this time of a distribution structure.

Good bearish candlesticks showing strong intent and bullish indecision

candlesticks from the moment of the upthrust to the final development.

It is also very clear at the aggregate level how impulse bearish movements are

accompanied by increased volume as evidence of interest in that direction

bullish corrections with a decline in volume.

as evidence of a lack of interest.

We know that volume can be interpreted subjectively and that its representation

will vary depending on the current market conditions.

But for the purposes of defining what the ideal signs would be, we will assume

that the classic textbook concepts represent the optimal behavior.

Therefore, seeing these signs would add an input in favor of the bearish

scenario.

Meanwhile, we should also analyze how easily the price travels thanks to these

impulse movements.

and its ability to break key levels.

We know that most of our analysis should be done on comparative terms.

So, if we intend to judge the nature and intensity of a movement, we must

compare it with a similar, previously developed one.

In this case, if we intend to analyze the capacity of the bullish movement, we

need to look at a previous similar bullish.

Here, we see noticeable differences in the first case.

the price needs up to four small upward impulses to travel through the entire

range, from the bottom to the top.

By contrast, the second movement only needs two upward impulses to travel even

further. This is an input in favor of the bullish scenario.

We should take that into account in our future decision -making.

In the case of a distribution, the reading is similar, but in reverse.

By analyzing the anatomy of the last bearish movements, we can see that they

have traveled a fairly short distance in relation to those seen after the

bullish -false breakout.

We can also see how these signs of weakness develop very vertically,

certain force and urgency in the movement.

This is what we want to see when we're looking for a good display of bearish

intent. In the case of analyzing movements in a trend, we can apply

same concept.

and we can inform ourselves of the type of trend by interpreting the scope and

depth of the impulse movements and corrections.

If we see that the trend is normal or fast, this would be a positive input in

favor of the scenario.

If, on the other hand, we see that the price moves below the last edge in the

direction of the trend, we could take this to be a negative input with no

to the scenario, or, if not negative, at least not positive.

Sometimes we also need to know when it is best to stay out of the market and

look for any type of trade, be it buying or selling.

The trend context in this example is precisely one of those situations.

We have seen a large uptrend develop with corrections which have generally

traveled a certain distance that would suggest to us that this is a fast trend,

like those we have seen previously, since the end of each correction does

always reach the end of the previous impulse movement.

We might feel comfortable trading in favor of said trend, but there comes a

point when the price develops that the final bearish movement that it has

marked. This bearish movement is much more powerful than any of the other

bearish behaviors seen up to that point.

In fact, given its force, it should be seen as an impulse that could generate a

change of character.

We know that this kind of behavior is what we would expect from an AR event

after a buying climax.

The only problem is that it visually denotes too much bearish intent.

It almost looks like the behavior you would see at the end of a bubble, where

the market generates almost a V -shaped reversal.

And the problem with these behaviors is that their appearance indicates a very

distinct bias in their direction.

Therefore, once this type of sharp action appears, any potential trading

against said behavior should be allocated a negative input.

Even so, we see in the example how a shakeout at the low, generated by the

still provided a significant upwards movement.

At the same time, we can see on the same chart an example of the concept of

structural failure, in this case of weakness.

This is something we have looked at previously and it has to do with what

market is unable to do.

What it is unable to do is just as important as what it is able to do, and

this case, what it is incapable of doing is reaching that high part of the

structure. At no time during the development of that range have buyers

enough to send the price to the high point.

To do this, regardless of the point structure development, buyers must

demonstrate a certain commitment and capability.

Well, in this case, at no time is the market able to generate said movement,

it remains at all times in the middle of the structure at most.

This sign in itself indicates a lot of underlying weakness.

And once we are aware of this, we should pretty much discard the search for any

buying opportunities, or, at the very least, assign them a negative input.

With regard to the false breakout, one of the signs that we should be analyzing

is its impact.

In other words, the distance the price travels once it breaks out of the

zone. The reading here is that the further the price moves beyond the edge

the structure before re -entering and moving toward the other end, the more

confidence we should have in this sign.

The reason is simple.

Based on the counterparty principle, we will assume that the greater distance

traveled corresponds to a greater liquidity consumed in said area.

Therefore, we can expect a greater effect from this particular cause.

We've previously seen examples of charts in which, after very minor false

breakouts of the zone, or even with no false breakout, the structure has

developed successfully.

So we know it's not something that's absolutely essential to see.

But I repeat, we are identifying those behaviors that give us the most

confidence, and therefore, the more the false breakout travels, the more

powerful the interpretation.

In this example, we see how the price travels exactly the same distance as the

width of the range before generating the reversal.

This is a really considerable distance, so we can assume that the market has

consumed a lot of liquidity at all of these price levels, which will add great

strength to the bullish scenario.

Therefore, A false breakout that has traveled a long distance before re

-entering the trading level should be added to our checklist as a positive

input. Another key element that we must take into account is the way in which

that false breakout develops.

The key here will be that the more urgency the behavior seems to show, the

better. That the more force we observe, the better.

In this case, the concept reflects the speed at which the market generates a

reversal after reaching the liquidity area.

The ultimate representation of high urgency would be to observe a V -shaped

reversal.

Let's go back to the previous example, which shows an almost textbook example

this concept.

Look at the speed with which it undoes all the previous downward movement.

This is the ultimate representation of what we would like to see, and

we would include this as an input in favor of the bullish context.

In this chart, we see the same pattern, but for a distribution structure.

It also combines the two aspects we have mentioned, both the distance it travels

upwards, which is significant, and the speed with which it goes up and comes

down, implying an extremely bearish sentiment at that point.

Does this mean that any false breakouts we see that follow a different sort of

pattern should be considered negative inputs?

Not at all. I repeat, we are identifying the ideal examples, those that will add

additional confidence to our analysis.

If a normal false breakout appears, following any type of behavior other

what we have just seen, it will simply be an important sign to take into

account, and it should bias our trading in this direction.

Before going any further, let's look at some of the ways in which a false

breakout can be represented.

Originally, the Wyckoff method has always treated this behavior as an

that takes place across one or a few candlesticks, which is fine.

But we can also include in this approach the textbook representation as we have

just seen in the previous examples.

But the reasoning doesn't end there. I believe that a false breakout could

implicitly develop in multiple ways, from a single candlestick to an entire

structure. This slide shows examples of different types of Barrett false

breakouts or springs.

From the point of view of giving extra weight to the scenario in favor of this

behavior, we would ideally want to see false breakouts that denote maximum

aggressiveness, So the faster that action takes place, the better.

At the end of the day, what is a false breakout?

A false breakout is ultimately a movement in the price which begins to

levels not previously seen and which the market at an aggregate level agrees

does not represent the fair price for the asset, generating, at that point, a

reversal that returns the price to the old equilibrium zone.

We need to understand that all price reversals follow the same pattern,

regardless of duration.

And this pattern will always be made up of three steps, exhaustion, absorption,

and initiative.

The reversal of an upward movement involves a combination of a lack of

or exhaustion from buyers to continue buying, absorption, which is the first

entry by large traders looking to sell in a passive way, and the aggressiveness

or initiative of sellers.

The opposite is true for the reversal of a downward movement.

The exhaustion of sellers is the first thing that occurs.

followed by passive positioning through the absorption of sales, and finally

buying initiative that will push the price up.

In essence, this three -step protocol is nothing more than an accumulation or

distribution process regardless of the time scale in which it develops and how

it is seen on the chart, whether as an isolated candlestick or a complete

structure. This chart shows a very genuine example of a bearish false

or spring on a single candlestick.

in favor of an accumulation pattern below, which would represent a very

attractive opportunity to go long.

In this other example, we see a bullish false breakout or up thrust in a two

candlestick pattern. An initial bullish candlestick that breaks through the two

previous highs and a large bearish candlestick that manages to close below

low of the first one, denoting major intent from the sellers.

In this new example, we see how this behavior is developed in a pattern of

several candlesticks.

Finally, here we have an example of a minor distribution structure that would

act based on the upthrust of the major structure to generate the bearish

imbalance.

A very visual example of this type of representation in the form of a complete

minor structure.

Once the price is positioned at those levels, we could decide to look at it in

lower time frame to observe the nature of that structure during its

This is especially useful if the larger structure has shown signs of being a

distribution up to that point, which would lean us more towards a potential

upthrust rather than a real bullish breakout.

And if in this context in which we are leaning more towards a potential

upthrust, we see that the market develops a minor distribution structure,

offers the ideal opportunity to trade since the risk would be very limited in

relation to the potential benefit.

The risk would be determined by the smaller structure, while the benefit

be that of the larger structure.

Having now seen the different ways in which a false breakout might be

represented, we are going to look at another related scenario.

What happens if too much time or distance is passed since the trading

broken? Can we still treat that as a false breakout?

I don't think this is a useful form of a trading approach at all.

It may simply be a representation of a large excess in the market.

But the implications are exactly the same. In the end, it is still a movement

that takes the price through the level and back again, which clearly indicates

what the market sentiment is.

We could treat these structures as independent and determine that the

distribution cause has had its bearish effect to the end, after which no more

traders are continuing to trade based on that structure.

And in addition to this, we could determine that what actually happened

a rapid accumulation structure that has nothing to do with the distribution

above.

The key here, beyond considering this to be a false breakout, whether we

implicitly understand that everything is part of the same structure or whether

we consider them as independent structures, is to try to interpret the

correctly from the point of view of our trading approach.

And in this case, after that powerful bullish reversal, regardless of the

duration and the distance traveled, What we are left with is a very bullish

sentiment and a roadmap which suggests we should only consider going long.

Therefore, this type of aggressive behavior should be considered an added

in favor of the bullish context.

Let's look at some more inputs that we should take into account.

In this case, trend lines.

We have already discussed how to correctly draw efficient lines, so the

dynamic here is to draw those lines as soon as we see that the market is moving

in a particular direction.

As we know, this will enable us to achieve a dual objective.

On the one hand, it will identify opportunities in favor of the trend, and

the other, we will be able to identify when said dynamic is broken, suggesting

possible reversal in the market.

How do we apply this concept from the purpose at hand, which is to increase or

decrease our confidence in a possible trade?

Well, first of all, we will feel more confident in a potential trading

opportunity whose entry trigger is in a confluence zone, that is, in one of the

areas at the edge of the trend dynamic.

We have already seen this slide previously, since it represents very

exactly we need to see to add an extra input in favor of a bullish opportunity.

As previously mentioned, it would be a more aggressive trade because we would

not have seen the breakout of the last short -term bearish momentum, which is

exactly what is happening here.

An example of the second application is the use of line drawing which, as I have

just said, is about at least waiting for the last short -term dynamic to be

broken before evaluating an entry into the market.

Although it is true that the previous situation adds strength to the scenario

due to the confluence of behaviors that take place, this situation is even more

reliable because, in addition to what was previously seen, we have another

input, which is the break of the bearish dynamic that established the short

-term control.

Confirmation of that test of the spring and that strong demand candlestick would

definitely set up a very high quality trade, as I say, higher than previously

seen. This would be acceptable to a slightly more conservative trader than

the previous opportunity.

Although the most conservative trade would definitely be found in the test

the breakout, at that point, the trader has already seen all the signs of prior

strength, the confluence zone, the spring, the test, the breakout of the

structure. Moreover, The price generates a new false breakout at that point in

the form of a break and retest of the entire reaccumulation structure.

It may well be one of the trades with the highest probability of success.

The more of these signs that we have in our favor, the greater confidence we

will have in the trade.

Last but not least, it is vital that we also talk about the sentiment of the

market driver.

When we trade in certain markets, it is essential to take into account the

context and the roadmap of the main asset, that is, that asset that has a

positive correlation with the one we want to trade in and whose behavior can

influence it to a significant extent.

Today, the market driver par excellence, in terms of equities, is the S &P 500

Index. If you're here, you already know about it. There's no need for an

introduction.

My recommendation is that if you trade in any equity asset, use the S &P 500,

whether you trade stocks or even cryptocurrencies.

Up to now, there has been a certain positive correlation between the

market and Bitcoin, so in this case, you should also take it into account.

If, for example, you want to trade only in cryptocurrencies, you should know the

sentiment of Bitcoin at all times, since this is the main driver of this market.

The idea behind this concept is that since we know that the S &P 500 can

influence the results of our trading, we need to somehow reduce this risk. For

this reason, we should also analyze the context and roadmap that it proposes.

Based on this analysis, we can draw two basic conclusions.

If the sentiment of the S &P 500 index is bullish or neutral, this would give

the green light to execute the trade, while if the S &P 500 roadmap is

we should avoid buying in that particular equity market.

I currently trade in stocks, and I use this approach to know when is a good

to be in or out of the market.

If the S &P 500 roadmap is bullish, I would assign greater confidence to this

particular input for any potential trade I find on the stock market.

If, meanwhile, the S &P 500 roadmap is neutral and a good opportunity still

appears for a certain stock, I would take it anyway.

assuming that a context of equilibrium in the driver may be more than enough to

ensure my trade is successful.

Finally, if the roadmap for S &P 500 is bearish, the most sensible thing to do

is aggressively manage the positions that we have open and not open new

positions since the probability of a fall exists.

And if the S &P 500 falls, it will drag down most of the market with it.

Obviously, those assets that naturally have a non -existent or negative

correlation with the S &P 500, are a different case.

For these, either this will not affect them or it will affect them inversely.

Finally, here is an extensive summary of what our trading checklist could be,

that is, everything we should take into account before executing a trade.

We have covered most of these concepts during the course so far, so having them

in a list like this is a very useful resource.

For the video, take a screenshot or take notes in some way.

because in essence it is part of the key content of the course.

Not all of these signs will appear during every trade we execute.

There are some that are common to all trading zones, but there are other

specific ones.

Let's finish this first major section in position management by looking at the

issues that we need to address even before opening the position.

To start with, we need to be clear about the minimum input.

This includes being clear in which direction we are going to trade in which

we will wait for the price and how we expect the scenario to develop.

Subsequently, we must identify those signs that, based on their behavior, can

instill in us greater confidence in the trade.

It is about analyzing all those differential signs with respect to the

and nature of the market's actions to add inputs in favor or against the

scenario with the ultimate goal of defining the quality of the trade.

The more inputs we have in our favor, the more confidence this trade will give

us.

Carrying out all these steps leads us to two possible end uses.

First, we can use this as a trading checklist and decide whether to execute

trade or not depending on whether it complies with the signs that we have

previously established.

In this way, we will define our trading plan in maximum detail, only trading

when these signs appear.

Perhaps you might decide that you will only trade if you have at least 6 out of

10 differential inputs in favor of the scenario.

This is one example.

Also, we can use this tool as a way of managing the size of our position.

We can define the quality of the trade depending on the number of favorable

inputs that we have identified.

For example, we can determine that the quality is low if it only has 5 or 6,

that it is medium if it has 7 or 8, and that it is of high quality if it has 9

or 10 inputs.

Based on this, we will assign a higher or lower risk to the trade.