When reading Price Action, one of the important concepts is to trade according to your bias before it is already obvious to everyone. You need to look for such price setups where you can already see some hints that the price is likely to move in the direction of your bias. At the same time, there is still no obvious entry setup. At this point we ask ourselves how other traders are likely to interpret the current situation.
How do you know that these early signs of reversal are not obvious to everyone else? Simple – the Market is not reacting to that setup just yet – the price is not breaking through support or resistance levels with enough conviction to show that the majority of market participants are trading in this direction.
If these signs are not obvious to everyone else, how do you know that these are correct signs? You don’t. That’s the main trick in trading – to act under uncertain circumstances. You want other traders to push the price in your direction, BUT after you are already in the market. We are seeking such a situation where not only there are enough traders who will see similar opportunity and start trading with us, but also there are enough traders who are holding the opposite position at this moment and who are ready to take a loss if the price goes against them.
If expecting a bearish move, start trading on a correction, on a bullish failure, on double top, on a bounce, etc. If you wait for the price to break a significant level, you are already too late.
The problem with waiting for too many confirmations is that we really can never be sure enough. Looking for confirmations only strengthens your desire to be right, to find a perfect opportunity. There is no perfect opportunity on the market, there is no situation when you can take a trade with absolute confidence that it is going to be a winner. But, there can be confidence that the Market is already providing a great selling/buying price and refusing it is foolish.
You see, there is nothing we can do on the market without our fellow traders. On the one hand, you need them to create liquidity and take the other side of your bias. On the other, you need them to move the price to your target after the entry – you want enough volume that will agree with your analysis as well. Whether this volume is generated through new entries aiming for profit, or taking old losses, is irrelevant.