In the past couple weeks the Dow has provided 2 very low-risk entries to initiate short positions. Notice that I have them both counted as 2nd waves, the 78.6% fibo can often be reached during a 2nd wave.
Trade #1 - Since a 2nd wave is not allowed to retrace 100% of wave 1, the top of wave 1 becomes the stop loss level. In this case the stop loss level is 11,716 as the origination of wave {i} blue down. Eying the 78.6% retrace level of wave {i}, a double top is formed right at that level, providing a less that 2% risk for a Dow short position. With a potential 20%+ drop according to my wave count, That provides an approximate Risk/Reward/Ratio of about 1:10, which is well worth my attention.
Trade #2 - Was another 'gimme'. Wave (ii) green also retraced and stalled right at the 78.6% fibo of wave (i) green. This provided a second low risk entry on a short position of just over 2%.
Now with stops set between 11,150 and 11,370 I have two short positions with good odds of greater downside loaded with minimal risk. At worst these trades could be stopped out for a small gain and break-even.
Many traders will often wait to enter a position after some kind of confirmation or strong move. I actually discourage that thinking because the risk can be greater. In my way of thinking, it's better to top pick or bottom pick starting with a partial position, then chase a trend that has already started. When the bus has left the station, chasing it can have greater risks. What if the bus suddenly stops and reverses while you are trying to get on? you could soon see your position under the bus. No, a better place to gage risk is at the designated bus stops, when price action is calmer and more organized. Trade management is risk management, in any market the ONLY thing you can positively control is the amount of risk one is willing to take......the ONLY thing. You have 0% control over price action, but you have 100% control over risk, therefore it's best to find and act on the conditions that provide the least amount of risk.
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