Price Action: Trading Tight Bull Channels (Part 2)

As long as the channel is tight,
the reversals you see are most likely only minor reversals.
If the bull trend resumes
and remains within a tight channel,
then the subsequent reversals are also typically minor.
Tight bull channels almost never reverse directly into a bear trend.

The pullback's low dropped below the breakout high —
this is a staircase pattern.
It is "overlap," not a "gap."
If there were a gap between this low and that high,
that would be a sign of a strong trend.
You should assume that the market will at least have another small second leg up.
When you observe the market and see a move like this,
you know it is a trend.

As long as you can see that the chart is a trend,
it means you believe there is a 60% probability the market will go higher.
And as a trader, a 60% win rate is already a very good probability.
So you must trade.
The simplest trading method is:
buy at market price and set an appropriate stop loss.
For example, you can buy anywhere in this area,
and a reasonable stop loss should be placed below the most recent major high or low.

If bears cannot make money by going short, it means the bull trend is very strong.
Bears should not rashly enter short positions.
They should wait until they see other bears starting to make money before considering going short.
As long as bears cannot consistently profit,
bulls will continue to aggressively go long.

Experts only consider adding to positions when they can reasonably construct a trade structure.
What is meant by "constructing a trade structure"?
It means you must have a plan that includes multiple contingency options
and you can make adjustments quickly.
This is something beginners cannot do.
So beginners should not do scaling-in trades,
especially counter-trend scaling.
Scaling in the direction of the trend is a different matter.

A typical structure:
Breakout – Channel – Trading Range
After almost every breakout, a channel forms,
and every channel eventually evolves into a trading range.
A channel is essentially a failed attempt
to continue the trend, but it failed.
The market cannot continue to make new highs,
so it enters a trading range.
Whenever the market fails to continue rising in a channel,
it transitions to consolidation.
And the starting point of consolidation is usually at some point after the channel forms.
In other words,
transitioning from a tight channel to a trading range is natural,
but transitioning directly into a bear trend is uncommon.