This trade breakdown is by Jacob Richardson, one of our Duomo Method course members who is now trading profitably.
I was looking back through my trade journal and came across this trade where I learned a valuable lesson that I wanted to share with you.
EUR/USD - October 2018
Daily Chart (Market Selection)
My market selection was based on the daily chart; the start of my analysis. The price was interacting with a strong baseline trend line and the major, long-term structure was in up-trend.
Although the most recent interaction with the baseline trend line didn't lead to a major move (relative to this time frame), this was still a major significant level to trade from.
This was potentially going to be a strong single confirmation once the candle closed. This meant, if I was going to trade this level I'd either need to wait for the close of this candle and then look for another single confirmation intra-day to confirm the trade.
Alternatively, I could use this simply as the market selection and not as part of the trade. This would mean I'd need a double confirmation on the intra-day time frames, since there is no confirmation from this time frame while the candle is still 'in play'.
1 Hour Chart
I decided to go ahead and find a trade entry, despite the daily candle not yet closing as a confirmation candle. My first port of call was the 1 hour chart.
On this time frame I found a beautiful confirmed Fibonacci range, with a 127.2 extension level aligning perfectly with the daily baseline trend line. An appropriate entry candle here (Type 1, 2 or 3) would tie in with the narrative being built by the higher time frame, therefore creating a good trading opportunity.
The entry candle arrived, with a Type 1 on the 127.2 on the setup candle, along with the interaction with the daily baseline trend line. All good, right?
Well, not exactly.
Since I hadn't had a confirmation from the daily candle (the day hadn't ended yet) it meant I was trading just based on a single confirmation here. Whats more, I hadn't considered how close we were to the close of the day and how the significant level would create a reaction in the price ready for the close.
Towards the end of the day, the price was attracted to the baseline trend line and the daily candle closed at its lows, without a wick. Not only does that mean it was not a signal for an entry, but it was actually the opposite. In this case, the Triad of Price Action would be telling me not to enter due to the potential continuation of bearish momentum.
This is what happened to my trade...
You see, when a candle closes without a wick in the direction it closed in (in other words, closing at the high/low of that period) we know there's a high probability of momentum continuing. We don't know how much momentum, so it could be only a small fluctuation or a huge trending move, but either way it's disruptive to our trade.
In this case, it was only a small amount of momentum before the price reversed anyway. In terms of the daily chart, the baseline trend line caused the reversal I had anticipated. However, without getting the confirmation from the daily chart, I should have been looking for a double confirmation on the intra-day time frames.
In other words, I got too eager, jumped ahead into a trade with a single confirmation and left myself exposed.