Why do you get “Clipped” in a trade? Here is the reason!

Why do you get “Clipped” in a trade?

Traders basically can have two personalities:  Aggressive vs Conservative  Which one is better?    The answer of why a trader gets “clipped” in a trade is answered by answering this question.

First, what is the different between the two different trader types.     The Conservative has a lot of rules and wants high probability trades.   They are willing to be patient for all the rules to come true. The aggressive trader wants to relax on some of the rules because they aren’t too patient.   They want trades!

In January 2015, we introduced a concept called iMTF, Ichimoku Multiple frame support/resistance.  Below is an email we received Dec 18, 2015 at 12:10pm EST for a 3 time frame MTF.   Price was at the MTF support off the 240m, Daily, and the Weekly.

2015-12-29_email

The email covered two of the three zones i.e. the swing traders and the long term traders.  However, we had to validate if the third zone, the day traders were thinking the say way.     The highest probability trades is when the day traders, swing traders, and the long term trader all have the same support.   They are all thinking the same way!

An aggressive trader would be ok with these two zones and take the pull back trade at the MTF Support.  The conservative trader wouldn’t until everyone is thinking the same way and has the same support.

Let’s look at the results of the different time frames.

NOTE:  All charts are provided by Thinkorswim.

Below is the daily chart for the XLV.    The MTF support on the daily time frame was the red line at 71.26.     Price got to that support….triggered the aggressive trader into the trade, got him stopped out, and then went his way.    Basically, he got clipped!

2015-12-29_xlvd

Below is the 4h time frame.   The Daily Support matched the Green line support for 4h.   Price went below this support which was controlling the sentiment for the 4h.    The sentiment went bearish and then went back to bullish.

2015-12-29_4hxlv

Below is the 1h time frame.   The MTF support is a support from the past.   Since it was not influencing price on the day when it got there, it had a 50/50 chance of holding.   In this case, it broke through it and went down.

2015-12-29_xlv1hr

Below is the 30m time frame.  It didn’t have the same support at the 240/D/W either.   It was a past support not influencing price when it got to that support.   Therefore, it had a 50/50 chance of breaking it.

2015-12-29_xlv30

In summary, the 1hour and the 30m did not have the same support as the 240/D/W time frame.  As a result, it was a 50/50 chance of holding it.    It was going to be a battle between the day traders and the long term traders with the swing traders caught in between.

Based on the results, the day traders won temporarily and then lost in the end to the long term traders because it is retesting the pivot high today.

 

 

Please note:  We have been blogging since 2007.    You can see our entire journey.     Jan 13, we are have our BIGGEST product launch webinar.  Something you don’t want to miss.  This is a risk free event over the web that is a MUST SEE.  

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EDUCATIONAL USE: Commodity Futures Trading Commission, Forex, Futures, Equity and Options Trading has large potential rewards, but also has large potential risk and may not be suitable for everyone. You must be aware of the risks and be willing to accept them in order to invest in these markets. Do not trade with money you you cannot afford to lose. This is neither a solicitation nor an offer to Buy/Sell. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this document. The past performance of any Trading System or methodology is not necessarily indicative of future results. All information provided on the Blog is for educational purpose.

About the Author Manesh Patel