Price Action: Trading Tight Bull Channels (Part 1)

Channels can be divided into two types: tight or broad.
Sometimes you cannot distinguish whether it is tight or broad.
If you cannot tell, treat it as a tight channel
and only trade in the direction of the trend.
When a channel is very tight, it is a breakout on a higher time frame chart.
When the market is in a bull breakout, it is best to only consider going long.

Criteria for determining whether you should really only go long:

Some characteristics to increase confirmation:

Do pullbacks last only 1-3 bars?

Is the pullback size less than 2-3 times the average bar height?
If so, that also means it is very difficult to make money going short.
Most pullbacks only retrace one-third to one-half of the previous rally.
You will also see many gaps —
gaps form between lows and the previous breakout points.
This means it is extremely difficult for bears to make money with limit order shorts,
such as selling at the previous high and adding on rallies.
They would need price to return to the original entry point to profit.
But if the market has formed a gap,
it is very hard for your position to return to cost.
Therefore, bears have difficulty making money, so you should not go short.
If you are going short to make money,
and you see that bears on the left side are all losing money,
you do not want to be on their side.

In a small pullback bull trend, all pullbacks are small.
This is a breakout on a higher time frame.

You can use your feelings as a radar.
Whenever you look at the chart
and feel anxious and eager,
hoping the market will have a deep pullback so you can go long,
that means the market is strengthening,
and you should immediately buy at market price.
Just buy, take a small position, and use a reasonable stop loss.

As long as the channel is tight,
the market usually needs to first transition into a trading range
before it can develop into a strong bear trend.
And "trading range" means
that even if the market first moves down,
it will very likely come back up eventually,
so you can add to your position at lower levels and avoid losses.
Tight channel = strong trend.
In the next 10 to 20 bars,
the most bears can achieve is a trading range.
There may be a deep pullback,
but that is just a bear leg within the trading range.
The market will very likely return to the top of the range,
allowing traders to exit at breakeven.
Skilled traders will add to positions at lower levels;
they can usually profit
even when encountering a deep pullback or strong reversal.
There is a 70% probability that the first downward reversal
will retest the prior high, allowing you to exit at breakeven;
there is an 80% to 90% probability that
the first decline will bounce high enough
for you to exit at the average price of your two entries,
breaking even on the entire position.