I learned long ago that keeping a trade journal not only helped me recognize patterns that suited my personality, but it also taught me how to avoid repeating mistakes.
The journal, through diligence and repetition, permitted me to develop a short-term entry strategy to enhance the timing for catching longer-term trends.
One of my biggest weaknesses was entering positions before momentum became apparent. A favorite pattern of mine requires a market to be in a consolidation phase for three to five days with severe overlapping prices and below day ranges. This pattern frequently leads to breakouts that extend about twice the length of an average day range or more.
The entry signal for this trade requires patience. I frequently guessed which direction the market would take and often entered a position about midrange. I would then get stopped out because a direction was not clear. When momentum did become clear, my confidence was low because I had already taken a loss and I would miss the breakout trade. So, I set out to create a signal to avoid midrange trades and enter when either bulls or bears revealed dominance.
The gold (NYSEARCA:GLD)chart below illustrates the ideal pattern and entry method. It is called maximum high and minimum low.
In this example, gold was in consolidation mode for three sessions, then accelerated lower after taking out the minimum low of the consolidation phase. The short position is taken when the low over the three days is violated. In this way it became apparent that sellers were the dominant force. As illustrated in the graph, the target is twice an average day range or more. If the max high had been violated, then a long position would be executed.