A POSTMORTEM ON THE EURNZD TRADE
Following a trade I took on EURNZD which I tentatively classed a good trade despite the outcome (it was a loser-see link below), I have since done some post-trade analysis and would now class this a "bad trade", at least from a trade management perspective.
In quick summary, the trade was based on the expectation of continued bullishness in the pair and a break out of the identified Inverse Head and Shoulders pattern on the Daily Charts, entries were based on a 2618 technique on the 1H time-frame. On the surface of it all, I'm quite happy with my analysis of the market and, my expectation and approach were not inherently unsound. However, after analysis, what has led me to conclude that this was a bad trade was my reactions to what the market was telling me mid-trade. Essentially, I didn't react.
Looking at the trade from the Daily charts, my analysis was relatively sound: the pair was in a bullish trend, had consolidated following an initial structure low (I.S.L), had setup a valid bullish pattern and was retesting the neckline/previous structure, had established a series of higher lows (essentially forming an ascending triangle). Lower time-frame analysis of price action indicated that sentiment was inclined towards further advance and had provided a good entry reason from which I could get involved in anticipation of a breakout. The main risk was that as price action had not decisively broken and closed above previous structure on the higher time-frame, I was essentially looking to capitalise on an early entry into the breakout, meaning there was a possibility that this may not occur and I should have prepared for this. "Predictive in your analysis, reactive in your execution" as my teachers like to say and one of my favourite sayings.
So I'm in the trade, the question is where did I go wrong and could I have identified this and acted to mitigate, minimise or even negate the lose. My conclusion on postmortem was "YES", when I take into account the last part of my analysis mentioned above, namely 'there was the possibility that price action would not break and close above previous structure resistance'.
Looking at what price action did on the Daily charts, we get a clue that this was a trade I needed to exit, in the form of a Shooting Star candle close at structure, on the day the trade was taken (21/03/2018 [or 03/21/2018 for the Americans and those who use this date format] Candle). This failure to close above structure resistance and in the form of a bearish reversal candle should have been a clear sign that at the very least I should have reassessed the trade as there was a potential (possibly temporary) shift in sentiment.
Furthermore, zooming down to the lower time-frame (1H), it is evident on two occasions that there was something of a shift in sentiment that should again have at the very least prompted me to reassess the trading opportunity.
Firstly, immediately following my entry, price action double topped twice and rolled over. This should have put me on alert for a bearish 2618 retracement. I guess here, I got distracted by the fact that good stop placement had saved me from a quick lose in the trade that I was not paying full attention to what else the market was doing and essentially telling me. That is, without intending to, I inadvertently switched to a relieved hopeful mindset. I'm learning this is one of the biggest killers to trading success.
The second was the retracement that provided a 2618 shorting opportunity to other market participants. This was what sealed the fate of my trade and would have proved to be a second chance "exit" opportunity. Again a saying from my teachers "Think like the other trader...".
So in conclusion, I get some points for analysis and execution, following the plan and my rules of engagement but I fail in trade management, psychology and market awareness.
In quick summary, the trade was based on the expectation of continued bullishness in the pair and a break out of the identified Inverse Head and Shoulders pattern on the Daily Charts, entries were based on a 2618 technique on the 1H time-frame. On the surface of it all, I'm quite happy with my analysis of the market and, my expectation and approach were not inherently unsound. However, after analysis, what has led me to conclude that this was a bad trade was my reactions to what the market was telling me mid-trade. Essentially, I didn't react.
Looking at the trade from the Daily charts, my analysis was relatively sound: the pair was in a bullish trend, had consolidated following an initial structure low (I.S.L), had setup a valid bullish pattern and was retesting the neckline/previous structure, had established a series of higher lows (essentially forming an ascending triangle). Lower time-frame analysis of price action indicated that sentiment was inclined towards further advance and had provided a good entry reason from which I could get involved in anticipation of a breakout. The main risk was that as price action had not decisively broken and closed above previous structure on the higher time-frame, I was essentially looking to capitalise on an early entry into the breakout, meaning there was a possibility that this may not occur and I should have prepared for this. "Predictive in your analysis, reactive in your execution" as my teachers like to say and one of my favourite sayings.
So I'm in the trade, the question is where did I go wrong and could I have identified this and acted to mitigate, minimise or even negate the lose. My conclusion on postmortem was "YES", when I take into account the last part of my analysis mentioned above, namely 'there was the possibility that price action would not break and close above previous structure resistance'.
Looking at what price action did on the Daily charts, we get a clue that this was a trade I needed to exit, in the form of a Shooting Star candle close at structure, on the day the trade was taken (21/03/2018 [or 03/21/2018 for the Americans and those who use this date format] Candle). This failure to close above structure resistance and in the form of a bearish reversal candle should have been a clear sign that at the very least I should have reassessed the trade as there was a potential (possibly temporary) shift in sentiment.
Furthermore, zooming down to the lower time-frame (1H), it is evident on two occasions that there was something of a shift in sentiment that should again have at the very least prompted me to reassess the trading opportunity.
Firstly, immediately following my entry, price action double topped twice and rolled over. This should have put me on alert for a bearish 2618 retracement. I guess here, I got distracted by the fact that good stop placement had saved me from a quick lose in the trade that I was not paying full attention to what else the market was doing and essentially telling me. That is, without intending to, I inadvertently switched to a relieved hopeful mindset. I'm learning this is one of the biggest killers to trading success.
The second was the retracement that provided a 2618 shorting opportunity to other market participants. This was what sealed the fate of my trade and would have proved to be a second chance "exit" opportunity. Again a saying from my teachers "Think like the other trader...".
So in conclusion, I get some points for analysis and execution, following the plan and my rules of engagement but I fail in trade management, psychology and market awareness.
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