This quick post applies to both, whether you are a swing, trend/position trader. Knowing when to get back in the market with your highest probabilities is essential to successful trades. The reason we haven't gone full in short is because we don't have any confirmation of a real reversal yet. This chart will help you understand when to get back in.
No trends go straight up or down, and a little tidbit, did you know that there are usually more up-days in bear market than down days? Above we have a downtrend marked by the red arrow, the upswing, bounce or pullback that we have seen the last 3 days is a correction, at least as it is now. The two red boxes show candles with higher lows and higher highs, those are the only candles we are concerned with in trying to determine when to get back in short on the downtrend. If it is a higher high but not a higher low, disregard it, same for a lower high and higher low-they must have both higher highs and higher lows. The last candle to make that higher high/higher low is our signal candle. When price, on an intraday basis (for most traders) breaks below the low of the last candle to make a higher high, higher low, you want to resume your position or get into the market at that point (the candle with the white arrow).
To figure out your risk and position sizing, you will use a stop above the high of the same candle. If you position size correctly (with the exception of a large a.m. gap) you can control your risk at 1 or 2% of portfolio or less if you like. The idea is the downtrend has resumed, if it stops out that means it has made a higher high and the bounce is still in effect. So as of now, we would look to add to shorts on a move below today's low at $108.78, our stop would be above today's high at $110.80, although I'd give it a little more room, maybe $110.94.
This works in uptrends as well just reverse the rules.
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