Professional Confluence Area Identification

I’m often asked, “Rob, how do you trail stops or identify target points into the future?” I want to share one of those additional techniques that we used in the live trading room here today as part of that process.

Before we do that, I want you to look at the chart in the video above, because this builds upon areas here that we’ve showed you before in some of the past Trade like a Professional series videos. If you are looking at the charts you should see something that looks familiar to you. Perhaps something like some distribution bars right on the 2 minute chart? How about distribution bars on the 5 minute chart and the 15 minute chart? Then we can even see some over here on the hourly chart, and then we even had one here. So basically coming 50% off those highs in this case. These are all areas that are very notable to us.

So what happened was I had a long position on, and I was trying to identify where I’m going to take profits on this. This had run up nicely, but it pulled back, and then it was trying to push back up, but by that time that it was trying to push back up again, it already had now multiple distribution bars in the backdrop as seen on the charts shown in the video. So what I do is, to identify areas where we’re likely to pull back, I identify all those different distribution areas that if I start to find key overlay sections, then what that does to me is tells me that we have a high probability that we could rollover from there.

So in this particular case, at that time, you’ll notice this bar right here was a distribution bar. It came more than 50% off that high there. So we’d drawn that one out; we’d then drawn the next couple bars after that as well, so that was from here down to here; and then this one here from here down to here. Well, as we put all that together, we saw one of the key overlap areas from the most recent distribution to the one right behind that was right in this area right here. So that tells me that is a very high probability that we could rollover from there.

Additionally, at that time, we in the same area had then found ourselves actually having distribution in the backdrop. So we found ourselves on multiple time frames having distribution that coincided with that exact same area all the way down to the 2 minute chart. So what happened was, the market had pushed up – in the example, I was looking for it to make a run up here to 9350 plus; instead, it ended up pulling back, taking back away some of that profit opportunity.

So when it pushed back up into this area here and it struggled right in that area where we had that confluence of resistance that I just showed you how to identify by taking a look at multiple distribution areas and the area that they all kind of converge on. When it got right back up into there, I just took the profits. Made about $210 on that, before obviously commissions, taxes, and that.

Then the result of that, and that’s what’s really important here, so we hit that area and you may be thinking, “Well, what happened next? Did it push right through there and go up like I ultimately was looking for it to do?” Well actually, no, it pushed right down and actually had rolled over at that time down, which would’ve caused a nasty little stop-out for most traders, had fallen right back down below the 9300. So is it better to identify that key support or resistance area? And then when you see that’s faltering right up in that area where you’re showing multiple distribution signs coming in simultaneously, is it better just to take the profit, walk away, say “Well, it would’ve been nice to have gotten the 9350 like we were looking for.” We were avidly discussing this in the room, kept telling people how I was looking for the 9350 and why and where.

But then when we had the pullback and then pushed back up, that pullback had actually created another distribution bar on top of the previous one in the back, so now we have a confluence of distribution. Now the risk is much higher that we’re going to find ourselves with a smaller profit, that we’re going to hit an area and possibly rollover again. And that’s what we did. We actually made a lower high here and rolled right back over as I showed you, down as low as below 93.

So this is another tool, to help you identify areas of confluences of support or resistance that are usable as target points, as meaningful targets, as you’re trailing up your trades behind, or you find an area that you just smack into and it’s like “Look, this is like stone; I don’t expect we’re going to make it any further,” where you can either continue to trail it up and trail it up a little bit tighter, as I did right up into this area; or you can just say, “You know what, we’re done, we’re out. We’re hitting that level. We’re not breaking through.”

When we get that question, how do you identify areas to trail up tighter or just take the profit off, this is another great tool that I use live in the room to do it.

I hope that continues to build on what you’ve learned, and I’m looking forward to seeing you in the next video.

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