Price Action: Microchannels (Part 6)

The third approach is an emergency entry. When you cannot get your ideal price, wait for a reversal bar or pause bar to enter. For example, in a bear microchannel, after three consecutive strong bear bars, if there is no pullback to the sell zone, you can sell at the close when a doji appears. In this situation, even if price briefly spikes above the pause bar, since the environment is still a bear microchannel, bears will very likely reappear quickly. Therefore, you can sell at the doji close, you can add shorts above the prior bear bar, or you can do both — either way, both trades have a very high probability of profit.

The same situation appears in bull trends. For example, after three consecutive strong bull bars, many bulls will wait for a pullback to the buy zone before buying. If the pullback does not reach the target, they buy at the close when a pause bar or a poor sell signal appears. This way, you do not miss all opportunities waiting for a specific price, but instead gradually adjust your entry conditions downward by priority. Through this approach, although you may miss the first one or two trades, you can still catch higher-probability opportunities later. For example, the pullback does not reach the buy zone the first two times, but when a pause bar appears the third time, buying at the close is still a very good trade.

Sometimes the continuation space after a pause bar is not large, especially in the late stages of a microchannel. For example, a pause bar appearing in a late-stage bull microchannel often leads to only one to three bars of continuation before entering consolidation. This does not mean buying at the close is only for capturing one bar — it is because the move itself has limited room in its late stages. If you are thinking in scalping terms, expect only brief continuation at this point.

Beyond pause bars, sometimes even a beautiful-looking reversal bar will fail in a new strong breakout. A common scenario is when price consolidates near the moving average and then suddenly breaks strongly away from the moving average. At that point, the first reversal signal attempt usually fails. For example, after price consolidates near the moving average and then breaks sharply down, bears have the advantage. Even if a seemingly good bull reversal bar appears, many bears will sell directly at the close because they know that in the current context, the first reversal attempt typically does not succeed. In this case, the reversal bar often never triggers, because too many bears sell directly at the close. Even if it triggers and a bull continuation bar follows immediately, it usually forms a narrow trading range rather than an immediate trend reversal.

The fourth approach is a micro trendline breakout. Al mentions in his books that micro trendline breakouts can be used as trading signals, but a careful look at those chart examples reveals that they are also microchannel breakouts. For example, a break of a bear micro trendline is usually also the first breakout of a bear microchannel. Therefore, even without drawing trendlines, observing the microchannel alone provides the same trading information. Al also frequently says in the trading room that you do not need to draw too many trendlines or micro trendlines on the chart, especially the very small ones. As long as you can see the trendline's existence through bar patterns, drawing or not drawing has little impact on trading decisions. The only place where trendlines have a significant effect is in drawing parallel channel lines to estimate the potential extension and resistance levels of a move. But when judging the first breakout of a microchannel, the trendline itself is not necessary.