August 7, 2014
The GBP/JPY had a big spike up ahead of the European open before once again re-settling below the pivot level of 172.305. Just ahead of the 3AM (EST) hour, price began consolidating into its own channel and by 3:10, a distinct level of support had been created along 172.21.
Recently in my trading, these self-created levels of support had been occurring rather frequently and have become some of my best set-ups. These need to be taken cautiously, however. Often, they come at the end – or a reprieve – of an ongoing trend. And in more ways than not, betting against a trend usually isn’t the best receipe for trading success. So it’s advisable to be very selective in these types of set-ups when you realize that the trend isn’t likely to proceed based on the evidence available to you on the price chart.
It wasn’t until the rejection of the 3:25 candle at 172.21 that I became perceptive of the fact that a call option trade at that level could potentially be an upcoming decision.
Once I got a bullish 3:30 candle, I felt that the buyers in the market were still willing enough to push price higher. So upon the re-touch of 172.21 on the 3:35 candle, I got into a call option. The entry five-minute candle did bounce off 172.21, but had a marked drop below it on the 3:40. The closing candle did offer a good fight back up, but this trade ultimately lost by three-tenths of a pip. Once the drop below the level occurred, I expected this trade to close out-of-the-money, but it nearly did make a comeback, even reaching at-the-money status at one point.
But it was time to move on and consider the next trade.
When price moved back above the previous level of support of 172.21 on the 4:00 candle, I began targeting potential put options back up at the pivot level of 172.305. The market reached here on the 4:20 candle and bounced off. However, I was not planning on getting into the trade immediately on a re-touch because of the fact that the pivot level had yet to be respected that day. In the earlier downtrend, price went right through it with such a strong selling movement, as could be observed in the above images.
I am a believer in price levels re-establishing themselves if evidence supports it, but in this case I wanted further confirmation that the pivot level could genuinely act as resistance so I decided to wait for possible further bounces. That way, I would have no regrets about taking a trade on the next re-touch only to have it whiz right through and proceed higher. As already stated, the pivot level had yet to really establish itself as a reversal point or even as a general delineation for an area of congestion. You never want to just trade a level. Always look for more than one factor when supporting a trade. At the very least, I’m always considering the price level and price action, and often trend and momentum as well.
But once the level had been further validated as a holding/reversal point on the 4:25 candle, I was certainly looking to make a put option trade at the pivot. A further re-touch did not occur on the 4:30, but rather the 4:35 where I got in at the touch of 172.305.
Nonetheless, this trade did not work out either. Price went through the pivot level and was up to seven pips out-of-the-money at one point. Similar to the first trade, the market made a comeback on the closing candle and at least threatened to venture back in my favor. But expectedly that wasn’t the case and I lost by about a pip.
I did watch the market a little while further. Notably I was simply looking at possible set-ups at the daily low so far, which came off the breach of the white line during my first trade. And the daily high, which came off the break of pivot on my second trade. I also would re-consider any type of re-establishment of the pivot level, but nothing surfaced there.
So I ended the day 0/2 ITM. But I never consider these types of days as “failures” of sorts. I don’t brood about it or keep a long memory over the non-successful results, or get emotional about the way things didn’t work out and make poor trading decisions to avenge those losses. It simply happens. I have been pretty accurate lately, but having a couple losing trades in a row is inevitable at some point. Even if you trade with 70% accuracy it’s very possible that you will lose three, four, or more trades in a row at any given time.
But I felt confident in all these set-ups and thought they were traded well. As I say often, trading is all about probabilities, and if you’re consistently putting them in your favor, then you will come out ahead over time – IF you genuinely do. Having an 0/2 day is simply a byproduct of a small sample size, and not necessarily always indicative of underlying shortcomings as a trader. If it becomes a pattern, then yes, it requires some honest analysis and reflection. But if it’s maybe a once-a-week occurrence, then it shouldn’t be anything to have great worries over.
I wrote a related post exclusively dedicated to this matter recently. You can find it here in case you missed it.