Tom Dante

Tom Dante

09-11-2022

16:22

A few thoughts on "catching a falling knife" A (Short) Thread

First things first: How you define the trend depends on the time frame you are viewing the market through. Trends can merge. A downtrend on a 1m can be in the context of a daily uptrend. The concept of trading a pullback is fading a short-term trend and joining a longer one.

The reason you're usually told not to catch a falling knife (a trend across all timeframes) is because so many amateurs trade without stops and refuse to close until they're in profit. The idea is: If you are WITH trend, it will likely bail you out even if your entry is poor.

If you do use stops, I am not convinced that trading against the trend is any harder than trading with it.

If the setup is there, I honestly don't care if it's with the trend or against it.

One thing I have learnt over the years: If you are going to trade counter to the market movement, you are usually better off fading sharp momentum than you are fading the drift. Amateurs prefer to fade the drift because it feels like the trend is running out of stream.

In prop, one of the great traders I worked alongside called this movement "the drift of death" - you go one way, and it just keeps going the other way, slowly but surely until you're carted.

Fading momentum takes a set of brass balls. One thing I always did was leave bids/offers in at levels and then pull them in a panic if the price made a sharp move into them. Those trades usually worked, and I would always be berating myself for being "scared money"

Remember momentum doesn't necessarily indicate a force. It's the market. It's not fucking physics.


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