Price Action: Late Trend Entries (Part 1)

"Chasing highs and lows" in a trend — that is, "late entries."

You will often hear people talk about FOMO trading. FOMO stands for "Fear of Missing Out."

In a bull trend, there is a type of "bull FOMO trade": traders are afraid to buy, but even more afraid of not holding a long position, so they buy with a small position.

When everyone is buying, the market often presents as a "small pullback bull trend."

In a "FOMO market," do not wait for a pullback — just "buy the close." As long as 3 to 5 consecutive bull bars appear, all closing near their highs, buy at the close. Look at where the stop loss must be placed, then size the order so the risk does not exceed that of other normal trades. Buy only half the position, reserving funds to add at a deeper pullback, thereby lowering the average entry price.

Continue until the market is no longer in the breakout phase and transitions into the channel phase or consolidation phase, then adjust the trading strategy. The probability of a quick reversal after such a strong rally is very small. Even if a pullback does occur, it will almost certainly develop into a trading range, not a bear trend. At that point, you can add at lower levels and expect the market to return to the top of the trading range, so the earliest positions can exit at breakeven, and the positions added at lower levels can take profits.

Those traders who keep waiting for a pullback will ultimately miss the entire big trend. And when the pullback finally arrives, they do not see it as a "pullback" or "bull flag" but as a "reversal," so they do not dare to buy.

"Buy the close" trades look easy on a printed chart after the fact, but they are very difficult to execute in real time. As long as you can accept the possibility of a reversal and can properly manage your position, you can try this type of trade, because you know that even if a reversal occurs, it may only be a minor pullback and the bull trend will continue. And even if it ultimately turns out to be just a trading range, as long as you did not buy at the worst possible point (the very top of the breakout), you are unlikely to lose money and may even profit.

Every bull trend ends with a final bull trend bar, followed by a reversal. This means every bull trend has a highest closing price. Every bear trend, looking back after the reversal, also has a lowest closing price. These prices are very important. When a trend is particularly strong — for example, a bear trend — traders sell immediately after each bear bar closes. As soon as a bar closes, they sell at market price.

A trader who only looks at line charts cannot see the lowest price — they can only see the lowest closing price. Many institutional traders only look at line charts. They do not care about the highest or lowest price — they only care about the closing price. Therefore, the lowest closing price is a support level, and the highest closing price is a resistance level.

When you see a reversal after a bear trend, many beginners feel confused and afraid. But experienced traders view "confusion" as an opportunity. It tells them the market is no longer doing what it was doing before. It was in a bear trend; now there have been multiple reversals. This indicates the market has entered a trading range. They will change their trading strategy. They do not get frustrated by this but understand the structural change in the market and adjust their trading approach accordingly. Whenever you feel fear or confusion, as long as you understand what the market is doing, it is an opportunity.

When a bear trend is very strong, traders will sell at almost any point. They especially like to sell at market immediately after a bar closes — they get filled at the open of the next bar. Some traders place orders a second before the bar closes, getting filled at close to the closing price, and they repeat this until this approach is no longer profitable.

Every time the market dips just one or two ticks below a line and then bounces, it shows bears are giving up — they are covering their shorts at this level. If even bears are buying, that is a big problem for the bear trend. And bulls see this too. They place limit buy orders near that closing price.

The market must drop at least one tick below the lowest closing price for bears to exit at breakeven. If the market only returns to the closing price, most bears cannot exit at breakeven.

Those bears expecting to cover are trapped. They feel even more frustrated. So they start placing limit orders to close above the low, but the market does not meet their price, and they are forced to exit at higher levels. You can see bears giving up, and bulls buying in, expecting the market to rise further.