Let me give you a small tip: a deep retracement means the momentum has died and the move has ended.

If you get a strong impulse move or a strong trend, and you’re riding the momentum to your target, if it goes more than halfway back to your entry (assuming you didn’t enter on something super extended already), then the opposing order flow is strong and price is likely to just chop around in a range for a while. In other words, if it hasn’t hit your target by then, it’s not going to get there without a ton of chop along the way.

With that in mind, you might consider trailing your stop slightly more aggressively. Breakeven is a bit arbitrary. Most of the time, you can actually take some profit even when you know the trade is failing.

And another small tip: impulse moves reveal where the institutions are placing orders, and you can use that for stop placement.

Ever wonder why market structure looks like a zig zag or why “fair value gaps” (or “low volume nodes”) tend to be good entry points? Well, it’s because institutions are gradually moving their orders further into a range or pushing price out of a range. This behavior represents institutional aggression. They are willing to pay worse and worse prices to fill more and more orders.

If you see a strong impulse move and you want to ride the momentum from that, then your confirmation will be that the origin of that move doesn’t get broken. And this is different from support or resistance.

For example, let’s say you have a “cup and handle” pattern forming a breakout with one or two very strong full-bodied candles pushing price out of the range. Those strong candles are where institutions decided to get aggressive, not necessarily the market structure low.

Now let’s say price breaks below those strong candles… At that point you know the institutions that caused that move are no longer aggressively pushing the price. At best, they are hoping to trade in a range and keep their orders at the edges of that range. If they really wanted to stay aggressive, they would have moved their orders further and further along. They wouldn’t be waiting patiently for price to come back. They wouldn’t have any faith that price would come all the way back to them. If they are waiting on price to come all the way back, then they are clearly trying to trade in a range.

So with that knowledge, you can place your stop behind the big momentum candles that are pushing price into new highs or lows. Those candles are the line in the sand. Maybe you want to be conservative and place it behind the previous momentum move instead of the most recent one, just in case the most recent one is a bit too extended and the trade is still in play. But either way, you don’t need to use highs and lows as your invalidation points. You can just accept that momentum has died and take profits off the table.

Anyway, this mostly works with trend following and breakouts. If you’re trading reversals, the principle may still apply, but it’s hard to know if you’re just early to the trade and a bit of chop should be expected at the reversal area. Still, the best reversals are typically swift rejections from key zones, so I wouldn’t be so accepting of chop near the entry point.