Here is an Engulfing Candle trade that I took recently and I thought that you might find it useful to see the trade from front to back. So in this post, I break down the thought process, order entry and exits on this trade. I also review the trade to show you what I could have done better.
To me, the best way to learn to trade is to see the process and the pattern before and after the trade. How many times have you gone back to see if a trader’s prediction on YouTube played out?
I would guess, not many.
That’s kind of unfortunate because there is a lot to be learned between the prediction and the final result. Therefore, I believe that it is much more beneficial to break down the trade after it’s in the books.
Writing about my trades also helps me learn from my trades. Everything is verified and I provide the proof.
Anyway, here’s a video breakdown of the trade. The text version is provided below the video.
Reasons for Taking This Trade
It is usually easier for me to take trades that go with the overall trend, than to try to buck the trend.
Other traders prefer countertrend trades. I will take countertrend trades, but I’m much more selective.
So in this case, there was a very clear case for a downtrend in the GBP pairs. Let's analyze this from the top down.
Here is the weekly chart for the GBPAUD. There is some room to the downside and price looks like it is taking a break before another leg down.
Next, the entry signal was an Outside Bar on the daily chart. Some traders also call this an Engulfing Bar.
Yeah, as you probably noticed, this was not a legitimate Outside bar. However, I did get alerts that Outside bars printed on other GBP pairs, so I decided to take this one too. It printed on a really nice resistance level and the probabilities looked good to me.
This is one of the important benefits of setting up trading alerts and using Incremental Automation. They can help you find related trades, especially when you are busy working a job or traveling.
Here are some examples of alerts that I got recently.
Now that I had a solid trade idea, it was time to enter the trade. I used the 80/20 entry on the trade, taking 80% of the position on the first profit target, and I let 20% run for additional profits.
Here is the entry, level and stop loss. The stop loss line is red and the entry line is blue.
The first exit was near the former support level. I thought it would be a good place to take some profits.
Closed Sell $GBPAUD 1.75927 for +229.0 pips, total for today +78.0 pips << https://t.co/S5lhaPRTuN #TFALchallenge
— Hugh Kimura (@TradingHeroes) September 16, 2016
The second exit was near the “valley” of the previous low, which is usually a safer profit target.
Closed Sell $GBPAUD 1.75927 for +637.2 pips, total for today +637.2 pips << https://t.co/S5lhaPRTuN #TFALchallenge
— Hugh Kimura (@TradingHeroes) September 27, 2016
Secondary Analysis and What I Could Have Done Better
As I mention here, it is very useful to analyze your trades after you have had some time to cool down and release any emotional energy associated with it.
One thing to look for is emotional exits and mental mistakes. The best place to start is to look at the chart after the trade is closed.
In this case, price could just be retracing for a move back down. However, since price is near a major low, it is a good place to get out.
If there was anything that I could have done better, it was possibly sticking with the first position a little longer. But overall, I'm satisfied with the exit and it's on to the next trade!
That’s about it. Although this wasn’t my most profitable trade of the month, it was well executed and it played to one of my strengths, which is the ability to let swing trades run.
To make sure that you don't miss any Engulfing/Outside Bars, our MT4 alert indicator can be a great solution.