Trade under ideal conditions

As explained in the clean chart section, seeing a clean chart does not necessarily mean the chart is tradeable. Instead, it can clearly and simply indicate the situation, such as whether the market is currently range-bound (choppy) and if the order flow is not yet suitable for entering a trade.

So, we now understand that the chart should be clean and clear, allowing us to understand what kind of trading behavior we should have without complexity. Suppose a trading opportunity arises; now we need to know what the ideal conditions for trading are.

As traders, there are four key questions we must answer before we can expect a successful trade with a higher probability. If we cannot answer these questions, we do not have the right to enter the trade. These questions are:

  1. Who is present in the market?
  2. How much money are they using in the market?This question is mainly about large traders, who might not have entered the market with all their money. For example, at reversal points, the price might pull back to the reversal and then drop. Essentially, when the price first touches the level and then pulls back, large traders may not have been able to enter with their full volume, but during the second pullback, there may be an opportunity to enter the remaining volume.
  3. In what direction are these traders moving?Are they moving in the direction of a decline or an increase? We determine this by assessing whether the extensions and corrections are reflecting strength or weakness and what their overall direction is.
  4. How long are these traders expected to stay in the market?We may correctly identify the first three points, but if we realize this too late and try to enter the market when large traders are exiting, our entry might only serve to help them cash out their profits and exit the trade.

Thus, a chart that perfectly answers these four questions is considered ideal.

But when can we get these answers?

When 80% of our trading checklist is ticked off, then we enter the trade. Such a position is ideal for us.

An ideal position is one where these four questions are sufficiently answered through the trading checklist, so that after the trade, we do not say: "Let's see what the result will be," or "I will trade this because I'm lucky," or "I ticked off 50% of the checklist and since my money is small, I’ll enter this trade and see what happens."

Regarding the first question— which category of traders is present in the market?— suppose, for any reason, we did not enter the trend from the beginning, and now that we open the chart, we see a continuation setup forming.

The question now is, under what conditions should we avoid trading this continuation setup?

  1. How long has the trend been continuing? That is, what extension phase are we in? If a long time has passed since the trend formed, we avoid entering the trade if possible.
  2. We evaluate the price projection, depth, and slope of the steps. If we see weakness and a decrease in financial and psychological stubbornness among traders in the direction of the trend, we do not enter the trade.
  3. We check if the price is close to a significant tension level.
  4. If in the last correction we witness a complex pullback, which is the weakest form of the trend.

We use all the above factors—comparison of the last projections, depths, slopes, and the quality of the last correction in terms of candlestick patterns, complex or simple pullbacks, and whether the skewness factor has changed—as clues to understand if the traders who created the trend and entered at lower levels are still present and willing to continue the trend.

If our trade is a reversal trade, we know that at some point, large traders were present in the market and moving upward. However, based on the above signs, they may no longer be present. So, we look for opportunities and reasons to enter a reversal trade.

We only understand the behavior of others when it changes. For example, we interact with friends, spouses, children, or anyone else based on their usual behavior and habits. But when their behavior changes, we notice certain issues.

The same principle applies to the market. We do not know if the traders who have been buyers and have shown persistence in buying, thus creating the trend, still have that persistence unless there is a change. We can only understand this through changes.

This is why it is said that we should not enter a trade in the middle of a step, even if we suspect the price will rise further and the price is growing before our eyes. In such situations, we do not enter the trade. We have a higher chance of successfully identifying a trading opportunity when we detect changes in trader behavior before the changes occur