When do we enter a trade ?
Does the market itself give us some clues to indicate it is time to apply the second reflection chart and make a decision to get on board ?
Yes, there are three clues that I look for. Each of these clues is obviously on your bar chart. Each is an indication that the market is doing something…something that would indicate that it is moving in a definable direction and that there is some power behind the move.
Apply the second reflection chart for an entry decision when:
Clue 1. A breakout.
The market has moved above many or all of the previous tops that can be seen on your chart. Or conversely, for a short trade, the market has broken down below many or all of the previous bottoms that you can see on your chart. Either situation shows that there is enough power behind the move to propel the price into new ground. The longer the time frame for the breakout, the more significant is the move. In other words, a breakout of all tops for the last six months is more significant than a breakout of all tops for the last three months.
Clue 2. A trend change.
The market has broken out above a long well defined downtrend and has taken out several previous highs of the uptrend. It takes a lot of power to turn a market around from a long established downtrend. When the new uptrend is confirmed by repeatedly moving above the newly established tops of the new uptrend, this is significant. The reverse of the above would apply to a well established uptrend for a short trade.
Clue 3. Gaps and/or long range days.
The market is relatively dull and suddenly, it gaps up and/or the daily range increases significantly showing that the market has waked up and something is happening. This is especially significant if it happens in combination with clues 1 and 2 above. The reverse of the above would be true for a gap down situation and a short trade.
Remember, the bottom line is dollars per day. We do not want to just trade any market using Adam Theory, we only want to trade markets which are doing something. We know that they are doing something because they are already doing something.
