1 00:00:00,300 --> 00:00:04,600 Position Management In this final module of the course, we will cover the fifth 2 00:00:04,600 --> 00:00:07,680 part of our trading plan, which deals with position management. 3 00:00:08,400 --> 00:00:12,640 Position management answers the question about how much, in relation to the size 4 00:00:12,640 --> 00:00:15,860 of the position, and, therefore, the amount we should risk. 5 00:00:16,480 --> 00:00:21,020 We would also answer the question of up to what point, which covers everything 6 00:00:21,020 --> 00:00:24,680 from the moment of entry to the closing of the position, whether at a loss, 7 00:00:24,860 --> 00:00:26,200 profit, or break -even. 8 00:00:27,020 --> 00:00:31,940 Since this subject is such a delicate one, we will go step by step, looking at 9 00:00:31,940 --> 00:00:35,760 the logic behind each of our movements and for every possible scenario we can 10 00:00:35,760 --> 00:00:36,599 think of. 11 00:00:36,600 --> 00:00:40,680 This will allow us to define as precisely as possible the way we should 12 00:00:40,680 --> 00:00:43,900 each situation and to be prepared when these scenarios appear. 13 00:00:44,720 --> 00:00:48,840 Position management starts from the moment the price is in our trading zone 14 00:00:48,840 --> 00:00:50,560 our potential entry trigger is developing. 15 00:00:50,960 --> 00:00:55,820 We have already performed all our prior analyses and now it is time to take off 16 00:00:55,820 --> 00:00:58,600 our analyst's hat and put on our trader's hat. 17 00:00:59,070 --> 00:01:00,810 Now is the time for action. 18 00:01:01,730 --> 00:01:03,790 Classify trades according to their quality. 19 00:01:04,569 --> 00:01:08,070 First of all, we are going to start with something simple but very powerful, 20 00:01:08,210 --> 00:01:11,830 which will help us later allocate a greater or lesser risk to the trade. 21 00:01:12,550 --> 00:01:16,890 As time passes and you gain experience, you will realize that there are trades 22 00:01:16,890 --> 00:01:18,790 that offer you better guarantees than others. 23 00:01:19,510 --> 00:01:23,950 If you have the ability to identify this sentiment in real time, one way to 24 00:01:23,950 --> 00:01:28,940 improve the risk -reward ratio is to allocate a larger or smaller position 25 00:01:28,940 --> 00:01:31,940 depending on the confidence you have in the trade in question. 26 00:01:32,280 --> 00:01:37,000 One way to put this idea into practice is to define the minimum inputs that 27 00:01:37,000 --> 00:01:40,300 be met in all trades before evaluating the trading approach. 28 00:01:40,880 --> 00:01:46,100 Later, depending on the extra signals we identify, we can increase or decrease 29 00:01:46,100 --> 00:01:47,400 the size of the position. 30 00:01:47,920 --> 00:01:52,820 These minimum inputs form the basis of our entire analysis, identifying 31 00:01:52,820 --> 00:01:54,280 correctly the context. 32 00:01:54,830 --> 00:01:59,710 to know what we want to do, whether to buy or sell, understanding the roadmap 33 00:01:59,710 --> 00:02:04,370 we can infer what the market is likely to do next, identifying the trading zone 34 00:02:04,370 --> 00:02:08,870 where we will wait for the price so we can make our entry, and predicting the 35 00:02:08,870 --> 00:02:11,650 appropriate scenarios according to the current market situation. 36 00:02:12,570 --> 00:02:16,010 This is the minimum we must be clear about if we want to take part in the 37 00:02:16,010 --> 00:02:20,450 market. Without this, there is nothing, and it is the most important thing 38 00:02:20,450 --> 00:02:25,280 because it will help us to both identify trading opportunities, and to discard 39 00:02:25,280 --> 00:02:29,340 those that are not, that are false signs which would ultimately cause us to 40 00:02:29,340 --> 00:02:30,800 enter the market on the wrong side. 41 00:02:31,480 --> 00:02:35,500 These minimum inputs, which cover much of what we have looked at in the course, 42 00:02:35,660 --> 00:02:40,600 eliminate that possibility, so we are almost always positioned on the right 43 00:02:40,600 --> 00:02:41,600 of the market. 44 00:02:41,680 --> 00:02:46,040 This is often overlooked and not given the value it really has, but knowing how 45 00:02:46,040 --> 00:02:49,980 to identify the right side of the market is vital, and something that most 46 00:02:49,980 --> 00:02:51,600 people are unable to do correctly. 47 00:02:52,270 --> 00:02:55,430 With these minimum inputs, we can cover this critical aspect. 48 00:02:55,690 --> 00:02:59,850 And once we have established the minimum inputs, we look at a list of the signs 49 00:02:59,850 --> 00:03:03,030 that will ultimately help us to determine the quality of the 50 00:03:03,770 --> 00:03:08,330 This does have to do with specific aspects of market behavior, and they 51 00:03:08,330 --> 00:03:10,510 differ depending on the trading zone we are in. 52 00:03:11,090 --> 00:03:14,650 We have already mentioned these previously, but we will go over them 53 00:03:14,650 --> 00:03:17,870 more detail to understand what we should and shouldn't look for. 54 00:03:19,240 --> 00:03:23,580 The main element we need to consider at this point is the degree of intent that 55 00:03:23,580 --> 00:03:27,840 the sign -in question suggests to try to determine the level of commitment of 56 00:03:27,840 --> 00:03:29,440 the participants in that direction. 57 00:03:29,980 --> 00:03:34,060 The more of these inputs that are aligned with our scenario, the greater 58 00:03:34,060 --> 00:03:38,320 commitment of the agents in that direction and therefore the greater 59 00:03:38,320 --> 00:03:39,319 the sign. 60 00:03:39,320 --> 00:03:43,560 The five inputs that we need to take into account to determine the quality of 61 00:03:43,560 --> 00:03:48,020 the trade we want to execute are the interpretation of the volume in 62 00:03:48,020 --> 00:03:53,100 areas, The nature of price movements, of the impulses or corrections, the 63 00:03:53,100 --> 00:03:57,560 anatomy of the false breakout, how and in what form it appears on the chart, 64 00:03:57,760 --> 00:04:02,480 whether or not the prevailing short -term dynamic has been broken, and 65 00:04:02,540 --> 00:04:06,480 the sentiment of the market driver, which could positively or negatively 66 00:04:06,480 --> 00:04:08,400 influence the result of the trade. 67 00:04:09,100 --> 00:04:12,200 We will now look in more detail at each of these. 68 00:04:12,970 --> 00:04:16,850 We are now well aware of the difficulty in analyzing volume due to the 69 00:04:16,850 --> 00:04:18,329 subjectivity of its interpretation. 70 00:04:18,850 --> 00:04:22,790 But with this in mind, we are going to apply the hypothesis that the more 71 00:04:22,790 --> 00:04:26,890 textbook of the representation of the volume is, the more confidence we will 72 00:04:26,890 --> 00:04:27,890 have in its analysis. 73 00:04:28,530 --> 00:04:33,250 We are going to use this volume analysis in different contexts, both in the 74 00:04:33,250 --> 00:04:37,450 volume generated during the development of a fast or slow structure and in the 75 00:04:37,450 --> 00:04:39,470 volume seen during impulses and corrections. 76 00:04:40,240 --> 00:04:44,000 We already know the characteristics of volume analysis within a structure. 77 00:04:44,180 --> 00:04:49,280 Therefore, if we see decreasing volume, this is an added input that suggests a 78 00:04:49,280 --> 00:04:53,960 bullish scenario, whereas if we see high volume with unusual peaks during the 79 00:04:53,960 --> 00:04:57,400 structure's development and basically anything other than a pattern of 80 00:04:57,400 --> 00:05:01,960 decreasing volume, this would be an added input in favor of a bearish 81 00:05:02,400 --> 00:05:07,180 With respect to impulse movements and corrections, The theory tells us that to 82 00:05:07,180 --> 00:05:11,080 denote harmony, an impulsive movement should be accompanied by an increase in 83 00:05:11,080 --> 00:05:15,800 volume, demonstrating an increase in participation, and therefore interest in 84 00:05:15,800 --> 00:05:19,700 that direction, while a correction should be supported by decreasing 85 00:05:19,880 --> 00:05:22,740 thus demonstrating a lack of interest in that direction. 86 00:05:23,000 --> 00:05:28,020 Well, assuming this to be the textbook ideal, a bullish impulse pattern with 87 00:05:28,020 --> 00:05:32,780 volume and a bearish correction with no volume would be an added input in favor 88 00:05:32,780 --> 00:05:33,780 of a bullish movement. 89 00:05:34,240 --> 00:05:38,280 while a bearish impulse pattern with a volume and a bullish correction with no 90 00:05:38,280 --> 00:05:41,500 volume would be an added input in favor of a bearish movement. 91 00:05:41,980 --> 00:05:46,480 This is the maximum representation of harmony of the movements, and therefore 92 00:05:46,480 --> 00:05:50,040 will use it to determine whether our potential opportunity is of a higher or 93 00:05:50,040 --> 00:05:50,999 lower quality. 94 00:05:51,000 --> 00:05:54,680 Special mention should be made about the volume seen at the moment of the 95 00:05:54,680 --> 00:05:58,000 breakout of any trading zone, not just in the structure. 96 00:05:58,520 --> 00:06:00,340 Let's remember what we learned previously. 97 00:06:00,920 --> 00:06:04,980 The only scenario we don't want is to see a volume peak at the end of the 98 00:06:04,980 --> 00:06:08,720 impulse movement, which would be followed by another movement in the 99 00:06:08,720 --> 00:06:12,840 direction. This would be an input that goes against the predicted scenario. 100 00:06:13,520 --> 00:06:18,360 By contrast, seeing a volume peak before the moment of the breakout would be an 101 00:06:18,360 --> 00:06:22,460 input in favor of it, while observing a volume peak during the breakout of said 102 00:06:22,460 --> 00:06:27,000 zone should be conditioned by the subsequent price reaction, as we already 103 00:06:27,460 --> 00:06:31,600 Regarding the nature of price movements, We are going to do the same as with the 104 00:06:31,600 --> 00:06:35,400 volume. We are going to identify the most genuine patterns of behavior that 105 00:06:35,400 --> 00:06:38,600 allow us to determine the intent and lack of interest of the participants. 106 00:06:39,300 --> 00:06:42,760 First of all, let's analyze the type of candlesticks that develop. 107 00:06:43,560 --> 00:06:47,440 Candlesticks showing intent represent an imbalance in one direction or the 108 00:06:47,440 --> 00:06:52,300 other. Buyers or sellers have gained control by trading more aggressively 109 00:06:52,300 --> 00:06:53,300 the other side. 110 00:06:53,420 --> 00:06:57,480 It is a candlestick with a large body and a wide range. 111 00:06:57,870 --> 00:07:00,110 whose closing price will be in the final third. 112 00:07:00,350 --> 00:07:05,030 It may or may not have a wick, but if it does, this should be on the opposite 113 00:07:05,030 --> 00:07:06,970 side to the direction of the candlestick. 114 00:07:07,510 --> 00:07:11,970 Meanwhile, indecision candlesticks represent a lack of interest or balance 115 00:07:11,970 --> 00:07:13,190 between buyers and sellers. 116 00:07:13,610 --> 00:07:19,110 These candlesticks usually have narrow bodies and ranges and closing prices in 117 00:07:19,110 --> 00:07:23,070 the middle third, although they may also appear with a wide range and a small 118 00:07:23,070 --> 00:07:26,530 body. In other words, with very long wicks at each end. 119 00:07:26,970 --> 00:07:29,610 Where would we expect to find candlesticks showing intent? 120 00:07:30,210 --> 00:07:34,070 Well, in the movements that are principally impulsive in nature, such as 121 00:07:34,070 --> 00:07:37,750 impulsive movements after a false breakout and breakout movements from 122 00:07:37,750 --> 00:07:42,530 zones. And in terms of indecision candlesticks, where would we expect 123 00:07:42,530 --> 00:07:47,290 appear? Well, in movements that are principally corrective in nature, such 124 00:07:47,290 --> 00:07:52,530 all those tests of the trading zone, be it the test after spring or upthrust, or 125 00:07:52,530 --> 00:07:53,670 the test after breakout. 126 00:07:54,510 --> 00:07:58,450 This accumulation chart offers a good example of these two concepts. 127 00:07:59,070 --> 00:08:02,970 After the development of the spring, good bullish candlesticks showing strong 128 00:08:02,970 --> 00:08:05,750 intent and bearish indecision candlesticks start to appear. 129 00:08:06,170 --> 00:08:08,270 This is the combination we want to see. 130 00:08:08,610 --> 00:08:11,330 And likewise in the trading zone after the breakout. 131 00:08:11,790 --> 00:08:16,130 The comparison is very evident between the strength of the bullish candlesticks 132 00:08:16,130 --> 00:08:19,310 in the impulse movements and the weakness of the bearish ones in the 133 00:08:19,310 --> 00:08:20,310 corrections. 134 00:08:20,360 --> 00:08:24,620 Seeing this pattern of behavior offers us another input in favor of the bullish 135 00:08:24,620 --> 00:08:25,620 scenario. 136 00:08:25,740 --> 00:08:29,120 Here is another example, this time of a distribution structure. 137 00:08:29,600 --> 00:08:33,440 Good bearish candlesticks showing strong intent and bullish indecision 138 00:08:33,440 --> 00:08:37,059 candlesticks from the moment of the upthrust to the final development. 139 00:08:37,299 --> 00:08:42,100 It is also very clear at the aggregate level how impulse bearish movements are 140 00:08:42,100 --> 00:08:46,680 accompanied by increased volume as evidence of interest in that direction 141 00:08:46,680 --> 00:08:48,780 bullish corrections with a decline in volume. 142 00:08:49,100 --> 00:08:50,640 as evidence of a lack of interest. 143 00:08:51,320 --> 00:08:55,640 We know that volume can be interpreted subjectively and that its representation 144 00:08:55,640 --> 00:08:58,160 will vary depending on the current market conditions. 145 00:08:58,520 --> 00:09:03,160 But for the purposes of defining what the ideal signs would be, we will assume 146 00:09:03,160 --> 00:09:06,460 that the classic textbook concepts represent the optimal behavior. 147 00:09:07,120 --> 00:09:10,980 Therefore, seeing these signs would add an input in favor of the bearish 148 00:09:10,980 --> 00:09:11,980 scenario. 149 00:09:12,200 --> 00:09:16,860 Meanwhile, we should also analyze how easily the price travels thanks to these 150 00:09:16,860 --> 00:09:17,860 impulse movements. 151 00:09:18,040 --> 00:09:19,720 and its ability to break key levels. 152 00:09:20,460 --> 00:09:24,440 We know that most of our analysis should be done on comparative terms. 153 00:09:24,740 --> 00:09:29,380 So, if we intend to judge the nature and intensity of a movement, we must 154 00:09:29,380 --> 00:09:32,320 compare it with a similar, previously developed one. 155 00:09:33,380 --> 00:09:38,300 In this case, if we intend to analyze the capacity of the bullish movement, we 156 00:09:38,300 --> 00:09:40,320 need to look at a previous similar bullish. 157 00:09:40,780 --> 00:09:43,720 Here, we see noticeable differences in the first case. 158 00:09:44,120 --> 00:09:47,980 the price needs up to four small upward impulses to travel through the entire 159 00:09:47,980 --> 00:09:49,880 range, from the bottom to the top. 160 00:09:50,140 --> 00:09:55,040 By contrast, the second movement only needs two upward impulses to travel even 161 00:09:55,040 --> 00:09:58,460 further. This is an input in favor of the bullish scenario. 162 00:09:58,800 --> 00:10:02,000 We should take that into account in our future decision -making. 163 00:10:02,500 --> 00:10:06,500 In the case of a distribution, the reading is similar, but in reverse. 164 00:10:06,780 --> 00:10:11,160 By analyzing the anatomy of the last bearish movements, we can see that they 165 00:10:11,160 --> 00:10:14,660 have traveled a fairly short distance in relation to those seen after the 166 00:10:14,660 --> 00:10:15,660 bullish -false breakout. 167 00:10:16,180 --> 00:10:21,560 We can also see how these signs of weakness develop very vertically, 168 00:10:21,560 --> 00:10:23,640 certain force and urgency in the movement. 169 00:10:24,080 --> 00:10:28,340 This is what we want to see when we're looking for a good display of bearish 170 00:10:28,340 --> 00:10:33,520 intent. In the case of analyzing movements in a trend, we can apply 171 00:10:33,520 --> 00:10:34,520 same concept. 172 00:10:34,760 --> 00:10:39,180 and we can inform ourselves of the type of trend by interpreting the scope and 173 00:10:39,180 --> 00:10:41,280 depth of the impulse movements and corrections. 174 00:10:42,060 --> 00:10:46,720 If we see that the trend is normal or fast, this would be a positive input in 175 00:10:46,720 --> 00:10:47,720 favor of the scenario. 176 00:10:48,000 --> 00:10:52,600 If, on the other hand, we see that the price moves below the last edge in the 177 00:10:52,600 --> 00:10:56,820 direction of the trend, we could take this to be a negative input with no 178 00:10:56,820 --> 00:11:00,960 to the scenario, or, if not negative, at least not positive. 179 00:11:01,550 --> 00:11:06,210 Sometimes we also need to know when it is best to stay out of the market and 180 00:11:06,210 --> 00:11:09,290 look for any type of trade, be it buying or selling. 181 00:11:09,810 --> 00:11:14,210 The trend context in this example is precisely one of those situations. 182 00:11:14,730 --> 00:11:18,650 We have seen a large uptrend develop with corrections which have generally 183 00:11:18,650 --> 00:11:22,630 traveled a certain distance that would suggest to us that this is a fast trend, 184 00:11:22,770 --> 00:11:27,310 like those we have seen previously, since the end of each correction does 185 00:11:27,310 --> 00:11:30,150 always reach the end of the previous impulse movement. 186 00:11:30,960 --> 00:11:34,840 We might feel comfortable trading in favor of said trend, but there comes a 187 00:11:34,840 --> 00:11:38,340 point when the price develops that the final bearish movement that it has 188 00:11:38,340 --> 00:11:42,620 marked. This bearish movement is much more powerful than any of the other 189 00:11:42,620 --> 00:11:44,640 bearish behaviors seen up to that point. 190 00:11:44,960 --> 00:11:50,020 In fact, given its force, it should be seen as an impulse that could generate a 191 00:11:50,020 --> 00:11:51,020 change of character. 192 00:11:51,620 --> 00:11:55,880 We know that this kind of behavior is what we would expect from an AR event 193 00:11:55,880 --> 00:11:57,360 after a buying climax. 194 00:11:58,090 --> 00:12:01,670 The only problem is that it visually denotes too much bearish intent. 195 00:12:02,170 --> 00:12:06,310 It almost looks like the behavior you would see at the end of a bubble, where 196 00:12:06,310 --> 00:12:08,770 the market generates almost a V -shaped reversal. 197 00:12:09,590 --> 00:12:13,550 And the problem with these behaviors is that their appearance indicates a very 198 00:12:13,550 --> 00:12:15,170 distinct bias in their direction. 199 00:12:15,770 --> 00:12:20,130 Therefore, once this type of sharp action appears, any potential trading 200 00:12:20,130 --> 00:12:23,270 against said behavior should be allocated a negative input. 201 00:12:24,010 --> 00:12:28,950 Even so, we see in the example how a shakeout at the low, generated by the 202 00:12:29,190 --> 00:12:31,750 still provided a significant upwards movement. 203 00:12:32,310 --> 00:12:36,830 At the same time, we can see on the same chart an example of the concept of 204 00:12:36,830 --> 00:12:39,570 structural failure, in this case of weakness. 205 00:12:40,230 --> 00:12:44,110 This is something we have looked at previously and it has to do with what 206 00:12:44,110 --> 00:12:45,370 market is unable to do. 207 00:12:45,830 --> 00:12:50,890 What it is unable to do is just as important as what it is able to do, and 208 00:12:50,890 --> 00:12:55,040 this case, what it is incapable of doing is reaching that high part of the 209 00:12:55,040 --> 00:12:59,880 structure. At no time during the development of that range have buyers 210 00:12:59,880 --> 00:13:01,680 enough to send the price to the high point. 211 00:13:02,060 --> 00:13:05,900 To do this, regardless of the point structure development, buyers must 212 00:13:05,900 --> 00:13:08,120 demonstrate a certain commitment and capability. 213 00:13:08,620 --> 00:13:13,500 Well, in this case, at no time is the market able to generate said movement, 214 00:13:13,500 --> 00:13:16,580 it remains at all times in the middle of the structure at most. 215 00:13:17,400 --> 00:13:20,680 This sign in itself indicates a lot of underlying weakness. 216 00:13:21,080 --> 00:13:24,960 And once we are aware of this, we should pretty much discard the search for any 217 00:13:24,960 --> 00:13:29,280 buying opportunities, or, at the very least, assign them a negative input. 218 00:13:29,880 --> 00:13:33,620 With regard to the false breakout, one of the signs that we should be analyzing 219 00:13:33,620 --> 00:13:34,620 is its impact. 220 00:13:34,880 --> 00:13:38,400 In other words, the distance the price travels once it breaks out of the 221 00:13:38,400 --> 00:13:42,720 zone. The reading here is that the further the price moves beyond the edge 222 00:13:42,720 --> 00:13:46,280 the structure before re -entering and moving toward the other end, the more 223 00:13:46,280 --> 00:13:48,040 confidence we should have in this sign. 224 00:13:48,340 --> 00:13:49,420 The reason is simple. 225 00:13:49,870 --> 00:13:53,470 Based on the counterparty principle, we will assume that the greater distance 226 00:13:53,470 --> 00:13:57,490 traveled corresponds to a greater liquidity consumed in said area. 227 00:13:57,830 --> 00:14:01,410 Therefore, we can expect a greater effect from this particular cause. 228 00:14:02,130 --> 00:14:06,430 We've previously seen examples of charts in which, after very minor false 229 00:14:06,430 --> 00:14:10,550 breakouts of the zone, or even with no false breakout, the structure has 230 00:14:10,550 --> 00:14:11,550 developed successfully. 231 00:14:11,710 --> 00:14:14,770 So we know it's not something that's absolutely essential to see. 232 00:14:15,280 --> 00:14:18,680 But I repeat, we are identifying those behaviors that give us the most 233 00:14:18,680 --> 00:14:22,580 confidence, and therefore, the more the false breakout travels, the more 234 00:14:22,580 --> 00:14:23,660 powerful the interpretation. 235 00:14:24,700 --> 00:14:29,080 In this example, we see how the price travels exactly the same distance as the 236 00:14:29,080 --> 00:14:31,320 width of the range before generating the reversal. 237 00:14:32,020 --> 00:14:36,220 This is a really considerable distance, so we can assume that the market has 238 00:14:36,220 --> 00:14:40,560 consumed a lot of liquidity at all of these price levels, which will add great 239 00:14:40,560 --> 00:14:41,880 strength to the bullish scenario. 240 00:14:42,480 --> 00:14:46,600 Therefore, A false breakout that has traveled a long distance before re 241 00:14:46,600 --> 00:14:50,400 -entering the trading level should be added to our checklist as a positive 242 00:14:50,400 --> 00:14:55,080 input. Another key element that we must take into account is the way in which 243 00:14:55,080 --> 00:14:56,480 that false breakout develops. 244 00:14:56,980 --> 00:15:01,340 The key here will be that the more urgency the behavior seems to show, the 245 00:15:01,340 --> 00:15:04,260 better. That the more force we observe, the better. 246 00:15:04,480 --> 00:15:08,820 In this case, the concept reflects the speed at which the market generates a 247 00:15:08,820 --> 00:15:10,880 reversal after reaching the liquidity area. 248 00:15:11,470 --> 00:15:15,950 The ultimate representation of high urgency would be to observe a V -shaped 249 00:15:15,950 --> 00:15:16,950 reversal. 250 00:15:17,090 --> 00:15:21,970 Let's go back to the previous example, which shows an almost textbook example 251 00:15:21,970 --> 00:15:22,970 this concept. 252 00:15:23,030 --> 00:15:27,270 Look at the speed with which it undoes all the previous downward movement. 253 00:15:27,510 --> 00:15:31,990 This is the ultimate representation of what we would like to see, and 254 00:15:32,190 --> 00:15:35,910 we would include this as an input in favor of the bullish context. 255 00:15:36,570 --> 00:15:40,610 In this chart, we see the same pattern, but for a distribution structure. 256 00:15:41,210 --> 00:15:45,830 It also combines the two aspects we have mentioned, both the distance it travels 257 00:15:45,830 --> 00:15:50,090 upwards, which is significant, and the speed with which it goes up and comes 258 00:15:50,090 --> 00:15:53,670 down, implying an extremely bearish sentiment at that point. 259 00:15:54,130 --> 00:15:58,430 Does this mean that any false breakouts we see that follow a different sort of 260 00:15:58,430 --> 00:16:00,190 pattern should be considered negative inputs? 261 00:16:00,450 --> 00:16:06,010 Not at all. I repeat, we are identifying the ideal examples, those that will add 262 00:16:06,010 --> 00:16:07,750 additional confidence to our analysis. 263 00:16:08,380 --> 00:16:12,500 If a normal false breakout appears, following any type of behavior other 264 00:16:12,500 --> 00:16:16,200 what we have just seen, it will simply be an important sign to take into 265 00:16:16,200 --> 00:16:19,120 account, and it should bias our trading in this direction. 266 00:16:19,640 --> 00:16:23,720 Before going any further, let's look at some of the ways in which a false 267 00:16:23,720 --> 00:16:24,980 breakout can be represented. 268 00:16:25,920 --> 00:16:29,980 Originally, the Wyckoff method has always treated this behavior as an 269 00:16:29,980 --> 00:16:33,740 that takes place across one or a few candlesticks, which is fine. 270 00:16:34,330 --> 00:16:39,070 But we can also include in this approach the textbook representation as we have 271 00:16:39,070 --> 00:16:40,750 just seen in the previous examples. 272 00:16:41,330 --> 00:16:45,490 But the reasoning doesn't end there. I believe that a false breakout could 273 00:16:45,490 --> 00:16:49,550 implicitly develop in multiple ways, from a single candlestick to an entire 274 00:16:49,550 --> 00:16:53,750 structure. This slide shows examples of different types of Barrett false 275 00:16:53,750 --> 00:16:54,790 breakouts or springs. 276 00:16:55,090 --> 00:16:59,030 From the point of view of giving extra weight to the scenario in favor of this 277 00:16:59,030 --> 00:17:03,090 behavior, we would ideally want to see false breakouts that denote maximum 278 00:17:03,090 --> 00:17:06,780 aggressiveness, So the faster that action takes place, the better. 279 00:17:07,440 --> 00:17:09,980 At the end of the day, what is a false breakout? 280 00:17:10,240 --> 00:17:14,400 A false breakout is ultimately a movement in the price which begins to 281 00:17:14,400 --> 00:17:18,839 levels not previously seen and which the market at an aggregate level agrees 282 00:17:18,839 --> 00:17:23,440 does not represent the fair price for the asset, generating, at that point, a 283 00:17:23,440 --> 00:17:26,440 reversal that returns the price to the old equilibrium zone. 284 00:17:27,200 --> 00:17:31,260 We need to understand that all price reversals follow the same pattern, 285 00:17:31,320 --> 00:17:32,320 regardless of duration. 286 00:17:32,920 --> 00:17:37,820 And this pattern will always be made up of three steps, exhaustion, absorption, 287 00:17:38,160 --> 00:17:39,160 and initiative. 288 00:17:39,660 --> 00:17:44,320 The reversal of an upward movement involves a combination of a lack of 289 00:17:44,320 --> 00:17:48,920 or exhaustion from buyers to continue buying, absorption, which is the first 290 00:17:48,920 --> 00:17:53,260 entry by large traders looking to sell in a passive way, and the aggressiveness 291 00:17:53,260 --> 00:17:54,680 or initiative of sellers. 292 00:17:55,140 --> 00:17:58,360 The opposite is true for the reversal of a downward movement. 293 00:17:58,560 --> 00:18:01,460 The exhaustion of sellers is the first thing that occurs. 294 00:18:01,950 --> 00:18:06,010 followed by passive positioning through the absorption of sales, and finally 295 00:18:06,010 --> 00:18:08,210 buying initiative that will push the price up. 296 00:18:08,790 --> 00:18:13,570 In essence, this three -step protocol is nothing more than an accumulation or 297 00:18:13,570 --> 00:18:18,350 distribution process regardless of the time scale in which it develops and how 298 00:18:18,350 --> 00:18:22,890 it is seen on the chart, whether as an isolated candlestick or a complete 299 00:18:22,890 --> 00:18:27,890 structure. This chart shows a very genuine example of a bearish false 300 00:18:27,890 --> 00:18:30,270 or spring on a single candlestick. 301 00:18:30,540 --> 00:18:34,640 in favor of an accumulation pattern below, which would represent a very 302 00:18:34,640 --> 00:18:36,440 attractive opportunity to go long. 303 00:18:36,740 --> 00:18:41,620 In this other example, we see a bullish false breakout or up thrust in a two 304 00:18:41,620 --> 00:18:45,980 candlestick pattern. An initial bullish candlestick that breaks through the two 305 00:18:45,980 --> 00:18:51,080 previous highs and a large bearish candlestick that manages to close below 306 00:18:51,080 --> 00:18:54,260 low of the first one, denoting major intent from the sellers. 307 00:18:54,620 --> 00:18:58,940 In this new example, we see how this behavior is developed in a pattern of 308 00:18:58,940 --> 00:18:59,960 several candlesticks. 309 00:19:00,750 --> 00:19:04,830 Finally, here we have an example of a minor distribution structure that would 310 00:19:04,830 --> 00:19:08,630 act based on the upthrust of the major structure to generate the bearish 311 00:19:08,630 --> 00:19:09,589 imbalance. 312 00:19:09,590 --> 00:19:14,170 A very visual example of this type of representation in the form of a complete 313 00:19:14,170 --> 00:19:15,170 minor structure. 314 00:19:15,710 --> 00:19:20,250 Once the price is positioned at those levels, we could decide to look at it in 315 00:19:20,250 --> 00:19:24,090 lower time frame to observe the nature of that structure during its 316 00:19:24,780 --> 00:19:29,040 This is especially useful if the larger structure has shown signs of being a 317 00:19:29,040 --> 00:19:32,920 distribution up to that point, which would lean us more towards a potential 318 00:19:32,920 --> 00:19:35,620 upthrust rather than a real bullish breakout. 319 00:19:36,180 --> 00:19:40,200 And if in this context in which we are leaning more towards a potential 320 00:19:40,200 --> 00:19:44,700 upthrust, we see that the market develops a minor distribution structure, 321 00:19:44,700 --> 00:19:49,340 offers the ideal opportunity to trade since the risk would be very limited in 322 00:19:49,340 --> 00:19:50,840 relation to the potential benefit. 323 00:19:51,360 --> 00:19:55,820 The risk would be determined by the smaller structure, while the benefit 324 00:19:55,820 --> 00:19:57,380 be that of the larger structure. 325 00:19:57,940 --> 00:20:01,700 Having now seen the different ways in which a false breakout might be 326 00:20:01,700 --> 00:20:04,940 represented, we are going to look at another related scenario. 327 00:20:05,560 --> 00:20:10,260 What happens if too much time or distance is passed since the trading 328 00:20:10,260 --> 00:20:13,480 broken? Can we still treat that as a false breakout? 329 00:20:14,100 --> 00:20:17,460 I don't think this is a useful form of a trading approach at all. 330 00:20:17,700 --> 00:20:21,560 It may simply be a representation of a large excess in the market. 331 00:20:22,000 --> 00:20:26,700 But the implications are exactly the same. In the end, it is still a movement 332 00:20:26,700 --> 00:20:31,000 that takes the price through the level and back again, which clearly indicates 333 00:20:31,000 --> 00:20:32,740 what the market sentiment is. 334 00:20:33,160 --> 00:20:36,660 We could treat these structures as independent and determine that the 335 00:20:36,660 --> 00:20:41,180 distribution cause has had its bearish effect to the end, after which no more 336 00:20:41,180 --> 00:20:43,960 traders are continuing to trade based on that structure. 337 00:20:44,220 --> 00:20:48,520 And in addition to this, we could determine that what actually happened 338 00:20:48,520 --> 00:20:51,820 a rapid accumulation structure that has nothing to do with the distribution 339 00:20:51,820 --> 00:20:52,820 above. 340 00:20:52,940 --> 00:20:57,300 The key here, beyond considering this to be a false breakout, whether we 341 00:20:57,300 --> 00:21:01,260 implicitly understand that everything is part of the same structure or whether 342 00:21:01,260 --> 00:21:05,300 we consider them as independent structures, is to try to interpret the 343 00:21:05,300 --> 00:21:08,000 correctly from the point of view of our trading approach. 344 00:21:08,240 --> 00:21:12,700 And in this case, after that powerful bullish reversal, regardless of the 345 00:21:12,700 --> 00:21:16,910 duration and the distance traveled, What we are left with is a very bullish 346 00:21:16,910 --> 00:21:21,050 sentiment and a roadmap which suggests we should only consider going long. 347 00:21:21,610 --> 00:21:25,730 Therefore, this type of aggressive behavior should be considered an added 348 00:21:25,730 --> 00:21:27,390 in favor of the bullish context. 349 00:21:27,890 --> 00:21:30,930 Let's look at some more inputs that we should take into account. 350 00:21:31,470 --> 00:21:33,370 In this case, trend lines. 351 00:21:34,010 --> 00:21:38,350 We have already discussed how to correctly draw efficient lines, so the 352 00:21:38,350 --> 00:21:42,530 dynamic here is to draw those lines as soon as we see that the market is moving 353 00:21:42,530 --> 00:21:43,530 in a particular direction. 354 00:21:44,460 --> 00:21:47,660 As we know, this will enable us to achieve a dual objective. 355 00:21:48,040 --> 00:21:52,640 On the one hand, it will identify opportunities in favor of the trend, and 356 00:21:52,640 --> 00:21:57,100 the other, we will be able to identify when said dynamic is broken, suggesting 357 00:21:57,100 --> 00:21:58,480 possible reversal in the market. 358 00:21:58,920 --> 00:22:03,520 How do we apply this concept from the purpose at hand, which is to increase or 359 00:22:03,520 --> 00:22:05,680 decrease our confidence in a possible trade? 360 00:22:05,960 --> 00:22:09,540 Well, first of all, we will feel more confident in a potential trading 361 00:22:09,540 --> 00:22:14,190 opportunity whose entry trigger is in a confluence zone, that is, in one of the 362 00:22:14,190 --> 00:22:16,330 areas at the edge of the trend dynamic. 363 00:22:17,070 --> 00:22:21,550 We have already seen this slide previously, since it represents very 364 00:22:21,550 --> 00:22:25,710 exactly we need to see to add an extra input in favor of a bullish opportunity. 365 00:22:26,390 --> 00:22:30,930 As previously mentioned, it would be a more aggressive trade because we would 366 00:22:30,930 --> 00:22:35,350 not have seen the breakout of the last short -term bearish momentum, which is 367 00:22:35,350 --> 00:22:36,770 exactly what is happening here. 368 00:22:37,050 --> 00:22:41,890 An example of the second application is the use of line drawing which, as I have 369 00:22:41,890 --> 00:22:46,110 just said, is about at least waiting for the last short -term dynamic to be 370 00:22:46,110 --> 00:22:48,670 broken before evaluating an entry into the market. 371 00:22:49,370 --> 00:22:53,350 Although it is true that the previous situation adds strength to the scenario 372 00:22:53,350 --> 00:22:58,210 due to the confluence of behaviors that take place, this situation is even more 373 00:22:58,210 --> 00:23:02,490 reliable because, in addition to what was previously seen, we have another 374 00:23:02,490 --> 00:23:06,530 input, which is the break of the bearish dynamic that established the short 375 00:23:06,530 --> 00:23:07,530 -term control. 376 00:23:08,500 --> 00:23:13,160 Confirmation of that test of the spring and that strong demand candlestick would 377 00:23:13,160 --> 00:23:17,060 definitely set up a very high quality trade, as I say, higher than previously 378 00:23:17,060 --> 00:23:21,760 seen. This would be acceptable to a slightly more conservative trader than 379 00:23:21,760 --> 00:23:22,760 the previous opportunity. 380 00:23:23,380 --> 00:23:27,080 Although the most conservative trade would definitely be found in the test 381 00:23:27,080 --> 00:23:31,420 the breakout, at that point, the trader has already seen all the signs of prior 382 00:23:31,420 --> 00:23:35,700 strength, the confluence zone, the spring, the test, the breakout of the 383 00:23:35,700 --> 00:23:40,580 structure. Moreover, The price generates a new false breakout at that point in 384 00:23:40,580 --> 00:23:44,100 the form of a break and retest of the entire reaccumulation structure. 385 00:23:44,980 --> 00:23:48,500 It may well be one of the trades with the highest probability of success. 386 00:23:48,960 --> 00:23:53,000 The more of these signs that we have in our favor, the greater confidence we 387 00:23:53,000 --> 00:23:54,000 will have in the trade. 388 00:23:54,840 --> 00:23:59,300 Last but not least, it is vital that we also talk about the sentiment of the 389 00:23:59,300 --> 00:24:00,300 market driver. 390 00:24:01,100 --> 00:24:04,960 When we trade in certain markets, it is essential to take into account the 391 00:24:04,960 --> 00:24:09,800 context and the roadmap of the main asset, that is, that asset that has a 392 00:24:09,800 --> 00:24:13,680 positive correlation with the one we want to trade in and whose behavior can 393 00:24:13,680 --> 00:24:15,560 influence it to a significant extent. 394 00:24:16,460 --> 00:24:21,720 Today, the market driver par excellence, in terms of equities, is the S andP 500 395 00:24:21,720 --> 00:24:26,440 Index. If you're here, you already know about it. There's no need for an 396 00:24:26,440 --> 00:24:27,440 introduction. 397 00:24:27,470 --> 00:24:32,670 My recommendation is that if you trade in any equity asset, use the S andP 500, 398 00:24:32,970 --> 00:24:35,530 whether you trade stocks or even cryptocurrencies. 399 00:24:36,090 --> 00:24:40,030 Up to now, there has been a certain positive correlation between the 400 00:24:40,030 --> 00:24:44,490 market and Bitcoin, so in this case, you should also take it into account. 401 00:24:45,790 --> 00:24:50,430 If, for example, you want to trade only in cryptocurrencies, you should know the 402 00:24:50,430 --> 00:24:54,730 sentiment of Bitcoin at all times, since this is the main driver of this market. 403 00:24:55,370 --> 00:25:00,070 The idea behind this concept is that since we know that the S andP 500 can 404 00:25:00,070 --> 00:25:04,810 influence the results of our trading, we need to somehow reduce this risk. For 405 00:25:04,810 --> 00:25:09,470 this reason, we should also analyze the context and roadmap that it proposes. 406 00:25:10,310 --> 00:25:13,670 Based on this analysis, we can draw two basic conclusions. 407 00:25:14,050 --> 00:25:19,650 If the sentiment of the S andP 500 index is bullish or neutral, this would give 408 00:25:19,650 --> 00:25:24,430 the green light to execute the trade, while if the S andP 500 roadmap is 409 00:25:24,730 --> 00:25:27,330 we should avoid buying in that particular equity market. 410 00:25:27,730 --> 00:25:32,270 I currently trade in stocks, and I use this approach to know when is a good 411 00:25:32,270 --> 00:25:33,870 to be in or out of the market. 412 00:25:34,350 --> 00:25:39,190 If the S andP 500 roadmap is bullish, I would assign greater confidence to this 413 00:25:39,190 --> 00:25:42,550 particular input for any potential trade I find on the stock market. 414 00:25:43,150 --> 00:25:47,850 If, meanwhile, the S andP 500 roadmap is neutral and a good opportunity still 415 00:25:47,850 --> 00:25:50,410 appears for a certain stock, I would take it anyway. 416 00:25:50,910 --> 00:25:55,290 assuming that a context of equilibrium in the driver may be more than enough to 417 00:25:55,290 --> 00:25:56,590 ensure my trade is successful. 418 00:25:57,210 --> 00:26:02,270 Finally, if the roadmap for S andP 500 is bearish, the most sensible thing to do 419 00:26:02,270 --> 00:26:05,990 is aggressively manage the positions that we have open and not open new 420 00:26:05,990 --> 00:26:08,650 positions since the probability of a fall exists. 421 00:26:09,130 --> 00:26:13,570 And if the S andP 500 falls, it will drag down most of the market with it. 422 00:26:14,610 --> 00:26:18,490 Obviously, those assets that naturally have a non -existent or negative 423 00:26:18,490 --> 00:26:21,650 correlation with the S andP 500, are a different case. 424 00:26:22,150 --> 00:26:26,910 For these, either this will not affect them or it will affect them inversely. 425 00:26:27,750 --> 00:26:31,710 Finally, here is an extensive summary of what our trading checklist could be, 426 00:26:31,850 --> 00:26:36,310 that is, everything we should take into account before executing a trade. 427 00:26:36,930 --> 00:26:41,570 We have covered most of these concepts during the course so far, so having them 428 00:26:41,570 --> 00:26:44,230 in a list like this is a very useful resource. 429 00:26:44,650 --> 00:26:48,330 For the video, take a screenshot or take notes in some way. 430 00:26:48,720 --> 00:26:51,920 because in essence it is part of the key content of the course. 431 00:26:52,500 --> 00:26:56,000 Not all of these signs will appear during every trade we execute. 432 00:26:56,340 --> 00:27:00,080 There are some that are common to all trading zones, but there are other 433 00:27:00,080 --> 00:27:01,080 specific ones. 434 00:27:01,300 --> 00:27:05,560 Let's finish this first major section in position management by looking at the 435 00:27:05,560 --> 00:27:08,580 issues that we need to address even before opening the position. 436 00:27:08,880 --> 00:27:12,140 To start with, we need to be clear about the minimum input. 437 00:27:12,460 --> 00:27:17,490 This includes being clear in which direction we are going to trade in which 438 00:27:17,490 --> 00:27:20,870 we will wait for the price and how we expect the scenario to develop. 439 00:27:21,790 --> 00:27:26,090 Subsequently, we must identify those signs that, based on their behavior, can 440 00:27:26,090 --> 00:27:28,270 instill in us greater confidence in the trade. 441 00:27:28,550 --> 00:27:32,990 It is about analyzing all those differential signs with respect to the 442 00:27:32,990 --> 00:27:37,530 and nature of the market's actions to add inputs in favor or against the 443 00:27:37,530 --> 00:27:41,190 scenario with the ultimate goal of defining the quality of the trade. 444 00:27:41,390 --> 00:27:45,590 The more inputs we have in our favor, the more confidence this trade will give 445 00:27:45,590 --> 00:27:46,590 us. 446 00:27:46,640 --> 00:27:50,600 Carrying out all these steps leads us to two possible end uses. 447 00:27:51,120 --> 00:27:56,080 First, we can use this as a trading checklist and decide whether to execute 448 00:27:56,080 --> 00:27:59,540 trade or not depending on whether it complies with the signs that we have 449 00:27:59,540 --> 00:28:00,540 previously established. 450 00:28:01,320 --> 00:28:06,660 In this way, we will define our trading plan in maximum detail, only trading 451 00:28:06,660 --> 00:28:07,820 when these signs appear. 452 00:28:08,340 --> 00:28:12,440 Perhaps you might decide that you will only trade if you have at least 6 out of 453 00:28:12,440 --> 00:28:14,660 10 differential inputs in favor of the scenario. 454 00:28:15,310 --> 00:28:16,370 This is one example. 455 00:28:17,130 --> 00:28:21,290 Also, we can use this tool as a way of managing the size of our position. 456 00:28:21,630 --> 00:28:25,250 We can define the quality of the trade depending on the number of favorable 457 00:28:25,250 --> 00:28:26,790 inputs that we have identified. 458 00:28:27,130 --> 00:28:32,510 For example, we can determine that the quality is low if it only has 5 or 6, 459 00:28:32,810 --> 00:28:38,530 that it is medium if it has 7 or 8, and that it is of high quality if it has 9 460 00:28:38,530 --> 00:28:39,530 or 10 inputs. 461 00:28:40,010 --> 00:28:44,210 Based on this, we will assign a higher or lower risk to the trade.