Tag Archive for: price action angles

Trade Management & Analysis on A Losing Trade

Changing tack a bit here, I’m going to be covering a losing trade forex management analysis here to give you an idea about price action, trade management and what I learned from this trade.

In my weekly trade setups commentary, I covered the USDJPY which had just broken range resistance and the ‘big figure’ at 125, suggesting more bullish price action.

I trade more with trend vs. counter-trend and was definitely bullish on this pair, so looking to get long.

Below is a 1hr chart of the pair right before the breakout.

usdjpy 1hr chart price action 2ndskiesforex

You can clearly see the uptrend movement starting from the bottom left of the chart, which eventually led to a corrective phase (blue box), or a period of balancing in the order flow.

Corrective phases at the top of a bull move and trend generally signal continuation, so was anticipating a breakout.

And the pair did just that, also forming an intra-day corrective phase at the highs (1hr chart below).

usdjpy price action breakout after correction 2ndskiesforex

After this breakout, I was looking to buy on a pullback. I talked about my buy being in the support zone around 125.10 – 124.75 so this was my trade location.

I put a resting limit order at 124.81 with a 30 pip SL and target around 126.60 for a potential +6R. If my idea is correct, we should minimally get a bounce towards the recent breakout highs.

My reasoning was as follows:

1) Price Action Context = Bull Trend, Impulsive Breakout, Volatile Trend
2) Corrective Phase led to breakout = Strong Bull + Factor
3) Balancing area was clearly defined = Strong + Factor
4) Looking to buy on a pullback into top of balancing area/corrective structure

If all the above is correct and the bulls are in control, they should maintain the breakout and will want to defend any pullbacks, along with potentially adding to their position.

Breaking back into the corrective structure would be a sign of weakness on their part, so I do not want to be long if we break past the upper area of the zone.

Hence this would invalidate my idea, and thus determined my SL location.

As you know, the trade resulted in a loss (see chart below).

usdjpy losing trade jun 8 2ndskiesforex

However, I did not take the full loss as I exited early for about half my original SL.

Why?

I was managing the trade in real time. If I had used a pure set and forget style trading, this would have resulted in a full -1R.

Instead it was a -.5R.

Now this may seem like a small deal only saving .5R, but over 100+ losses, this could result in a +50R to my bottom line!

I don’t expect each trade I manage personally (or exit early) to be the right decision every time.

Ever heard the old adage from professional traders ‘let your winners run and cut your losses quickly‘?

Does that sound like they are using the ‘set-and-forget’ method to manage their trades? I don’t think so, and neither should you.

Regardless, in managing my trades actively, I do not expect each time for it to be the right decision.

What I do expect is that overall I will have a positive expectancy in managing my losses (and winners). I expect with my trades that letting them ride to the set and forget SL or TP will not be as profitable or provide a greater edge vs. managing my trades.

Before I get into that further, let’s get back to the trade, show you what I was thinking, and why I exited the trade early.

Below is the 15m chart the candle before my actual entry, along with my trade location (entry) and my SL.

usdjpy trade location 15 min chart 2ndskiesforex

Now look at the 5m chart below and you’ll notice some greater detail on how the price action was reacting to the support zone.

usdjpy 125 bids stepping in 2ndskiesforex

You can see there were 3 touches/bounces off 125 (blue arrows) showing where the bids were coming in.

However, you’ll also notice something else (see chart below).

price action angles off key level 2ndskiesforex

Each reaction off the level is getting weaker.

This suggests the bears are pushing back the bulls and forcing them out of the market. The faster players are realizing this and getting out before it breaks.

I’ve talked about the importance of price action angles and how the PA is reacting to a level based on the angle it makes.

This is indicative of the underlying order flow, denoting the strength (or weakness) of the bids/offers in the market and around the level.

My original instincts were to just get out before the trade activated. I wasn’t totally feeling on my game yesterday, so was definitely slow to respond.

Shortly after my trade opened, there was a small consolidation (middle right side of chart above) which was also showing weakness.

Once the breakdown happened from there, I was out. If I was following my instincts, I would have either a) never been in this trade or b) exited early.

An off day mentally and it showed in my trade management.

Learning From Each Trade
Regardless, I learned something from it, and my philosophy regarding trading is either I win and learn, I lose and learn, or a I fail to learn.

The first two are wins to me because I learn something each time which translates into a greater edge and profits over time.

The last one is the real failure (and loss) IMO as there is something to learn (either about price action or my mental execution and mindset).

But this brings me to another key point.

Why Set And Forget Is Not Ideal or A One Size Fits All
Set and forget is one style of ‘forex trade management‘ and there are many trade management options available, all on sliding scale between passive and active.

If I’m a set and forget trader, and targeting a typical +2R, yet I can see the market is mostly likely to run for a +6, +8 or +10R, why would I just ‘forget’ about that?

Why would I not maximize my edge at every turn? Does a professional poker player just say ‘I only want to make x amount on this hand and that’s it‘?

Of course not – they want to maximize their gains from every single hand.

This is why stating the set and forget method is the be all end all of forex trade management tactics is a freshman idea.

There are a few instances I recommend trading the set and forget style of trade management (limited circumstances).

But I do not recommend it as a resting point or long term method.

You’ll limit your upside on runners, take full losses when you shouldn’t, and decrease your feedback loop over time.

It is true that managing a trade in real time takes more skill, psychological confidence and mental strength vs. the set and forget approach.

But that doesn’t mean we should avoid such a skill, venture or challenge.

Why put limits on your upside growth and performance? No elite performer does this.

What I do recommend is starting off with a set and forget style forex trade management strategy.

But once you’ve built up your skills of reading price action context in real time, then it’s time to move onto trade management methods which allow you to take advantage of long running trends.

Want to Build Up Your Price Action Skills?

My Price Action Course is specifically designed to help you build up your price action skills so you can learn when to stay in a trade, let it run for a large profit, or exit for a small loss.

This course is skill-based, meaning we teach you the core price action skills from the ground up. These can be used on any instrument, time frame or environment, and is the core skills I am always trading my live money with.

Did you find this forex trade management strategy article useful?

What style of forex trade management do you use, and have you ever wished you could learn when to cut your losses early and let your winners run?

As always, I want to hear from you on this one.

Thank you for reading this important post, and please do forward this to anyone you think can benefit from it.

,

Price Action Angles – Trading Forex Price Action

I wanted to write a brief article on a simple method I use to analyze price action – that of drawing trend lines to read the forex price action angles, or the speed of the buying/selling in the market.

I’m going to use an example to highlight how they can be useful for understanding trends, transition phases in trends, and when to look for key price action reversals in the market.

Exhibit A:  EUR/USD Daily Chart
price action angles - trading forex price action 2ndskiestrading.com sept 17th

Looking at the forex price action trading trendline chart above, the EURUSD started 2012 dipping to 1.2600 before starting an impulsive bull run which climbed almost 900+ pips in a month and a half.  Now if you look towards the left side of the chart, you’ll see a pullback to the horizontal line.  Price rejected off this line, forming a piercing pattern that climbed 6 out of 7 days and over 500+pips.

This is the move in line A.

After reaching the peak from move A at about 1.3500, price then sold back in 11 days back towards the same support line.  Although the low from this sell-off was a tad higher, take a look at the bounce off the level.

Notice how it had 3 bear days in the 8 day move (2 more than in prior move), but only went about 400pips (20% less)?

To me, when I see two rejections off a key level, I’ll draw trend lines on both of them (underneath if they are bull moves, and above if they are bear moves).  The reason I do this is to measure the strength or speed of the buying/selling.  This is communicated to me by looking at the price action angle of each trend line.

In this case, I have a weakening angle from A-to-B.  This communicates a weakening effort by the bulls and that the bears are trying to take control of the market.  Keep in mind, this is all happening above a support level, so the bulls still have overall structural control.

When you however look at the last bounce off this noted support line, we can see a massive weakening in the angle.  When I see three structural, or price action angles weakening successively, this usually is a sign of an impending breakdown.  What is also interesting is the C leg took 12 candles to gain only 250pips (50% less than A-leg, and 38% less than the B-leg).  Put these two together, and you should be looking for a breakout to the downside.

What is interesting is how price action formed a pin bar strategy off this key level.  If you were just trading pin bars as is, without the ability to read price action in real time, you would have taken the long on this pin bar setup, but then got crushed on the ensuing breakout which is below.

Exhibit B: EUR/USD Price Action Angle Weakening/Trend Change
price action angles - pin bar strategy trend change 2ndskiestrading.com chris capre

Working with this chart above, we can see how even though there was a pin bar setup at the horizontal support level, price dropped right through that – stopping out traditional pin bar traders who were not reading the price action in real time, or the change in the angles.

In a flash, the trend was reversed and the pair sold off over 600+pips in less than a month.  Had you been reading the price action angles in real time, you would have spotted this potential trend change, and looked to get short instead of longing off the pin bar setup.

This is one way to use forex price action angles to help with your reading and understanding price action.

Another way you can use them is in understanding parabolic or climactic price action moves.  These can also be understood via these trend lines and angles.  But they are a simple tool which is highly useful in forex trend trading, understanding transition phases in trends, and when to look for possible reversals.

I hope you enjoyed this article and found it a useful addition to your price action trading toolbox.

For those wanting to learn to trade price action, get access to the traders forum, a lifetime membership with free updates and more, visit my forex price action course page.