Failing to Gain Support

The concept can only be learned after you begin to understand gaining and losing support, as well as the characteristics of how trends form.  In earlier lessons, I alluded that levels fail to gain or lose approximately 10% of the time.  I haven’t back-tested this figure so the percentage could be more or less.  You should know that this occurs during a relatively small percentage of the time, but also frequently enough that it warrants learning the concept.

In the picture above, focus attention on point 1.  Here a swing high has been made, followed by a small retracement. At number 2, the price finally manages to get above the high established at point 1.  Thus far, this is a perfectly normal price action that we would expect to see as a trend has formed. At number 3, price behavior begins to deviate from what I would expect to happen as price retraces to test the high at point 1.   Normally, I would expect price to test the high made at point 1 and continue higher. This does not happen.  Instead, the price fails to pop at the first test of point 1, failing to gain the previous high.  Failing to gain a level should be treated the same as losing support. Thus, this high failed to gain.  Ideally, you should wait and take the entry at point 4 only if the low that produce point 2 was lost.

From here, I would mark the level that failed to gain and wait for price to reestablish a first touch, which happens at point 4. The first touch is a valid first touch because failing to gain is treated the same as losing support. Upon entering short, your first target would be the last level gained. Your stop would also be set just above the new high formed at point 2. Getting above this high would indicate that trend will likely continue higher and invalidate your trade short.

There is no reason to enter the trade anywhere except for a first touch.

In the example below, I labeled the same process of failing to gain, but for LTC/USD in the cryptocurrency market.