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| USDJPY M30 |
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| USDJPY M5 |
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| USDJPY M1 |
So here is my take on how typical PA traders will trade this vs how true PA traders (Lovejoy style) will trade this.
Typical PA: Probably wouldn't even be looking at this because they focus on H4 and above and believe that LTFs are all noise
True PA: Sees a material false break into former demand with strong rejection back down, starts looking at LTFs to identify the SD structure and any potential trade opportunity.
Typical PA: Dismisses the setup because there is no pin bar or some favorite candlestick pattern
True PA: Understand that what is important is a strong rejection which indicates strong selling strength, candlestick patterns are secondary and unnecessary
Typical PA: If they decided to trade the false break, they will usually place the stop above the high of the breakout bar, which results in an unnecessarily wide stop loss and poor RR
True PA: Understands that the M1 former demand should hold for the trade to work out, and hence there is no need for a stop loss higher than that.
Typical PA: Have the mindset that the trade should at least yield 1:1 or more, and thus are only willing to TP when they're 1:1 or more in profits. Recall that they already have a very wide SL above the breakout bar high, and as such requires price to move a substantial distance before they will TP. They do not realise that 1:1, 2:1, or a TP based on moving average, Fib etc are just arbitrary levels with no logical implication. As such price often turns back on them and a winning trade becomes a losing or break even one
True PA: Understand that price moves from zone to zone, and there are certain ways to identify which zones/levels are significant and will cause a material reaction. Such a zone is used for the TP.
So in summary, I believe that SR and SD is all a true PA trader needs to be very profitable. Interpreting that correctly is the difficult part. In the above trade, my SL was 0.8 pips and the return was 4 pips, hence a 5R trade (excluding comms). I believe most traders would think that a sub pip SL is extremely tight, but really it is not about the SL size but the SD structure behind the setup. Also, if one were to focus only on the H4 and above time frames, the above setup isn't even visible and is probably only a small move. However this small move if played correctly using multi TF analysis down to M1 is actually a 5R trade within 45 mins.
Trading like that required a huge mindset paradigm shift for me as I came from the typical PA background. However I truly believe it is the most profitable way to trade, though quite honestly also the hardest I've come across. Hope this post helps!
