Saturday, April 13, 2013

Analysis of a losing trade, then lower high after divergence

Looking at EJ D chart going into 10 April. The 9th was a positive close but the 4hr is showing negative, sell divergence.

See 1hr chart arrow down left 10 Apr. At that stage we are not close to an identified resistance level from D chart or a W pivot. Our view is up until flow confirms otherwise. You have a nice upper wick shooting star, by itself a nice candle. The 50 ema clearly showing the direction of move up. 1hr making higher highs higher lows. The shooting star does not come close to crossing our 8lwma or causing RSI to cross its signal line (8sma). So that quite rightly is not a sell trade counter trend, there is not enough information to believe it will follow through lower. If it does go lower no problem it wasn't a system trade.

Looking at D going into 11 April. The 10th was a positive D close little/no upper wick. So without an identified resistance level and some distance to the W M4 pivot bias is up. 4hr is still showing divergence as it has done basically all week.

Middle arrow down. The 1hr 50 ema still trending up but this is the 4th time price has tested the 130.50 level and failed. 1hr shooting star that cannot close below the 8lwma or RSI to cross its signal line (8sma). Neither the wick or body are large. We had a losing sell here. The trade was based on the 130.50 resistance and divergence.

Possible lessons to take from this.
  • Weak candles that hesitate but cannot cross the 8lwma or cause RSI cross
  • Differentiate better between trend v counter trend
  • Look at intra day support/resistance levels more closely in trend v counter trend
  • If you decide not to take a trade don't punish yourself if it does indeed work out
  • Or just accept that it tried 4 times to go higher. A sell was reasonable and failed, it happens
  • Be aware of the factors around your losing trades, if the same things are repeating then build those circumstances into your trade rules as set ups to avoid
Interesting the sell that does work, see arrow right on 12th, is the lower high that follows the divergence and reject of W M4. Here price action has confirmed the divergence, the lower high and there have been 2 x 3 bar/engulfing negative closes after the high at 131.09.





  

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