The 300 Pips Profit That Got Away (The Importance Of Top Down Technical Analysis)

This is a post about the +300 pips profit that got away.

If you followed my free forex trading signals from last week, 11th-15th July 2016, you’d notice that I gave a sell trade setup alert on NZDCAD on the daily timeframe and this was what I said:

1000 pips profit can come very easily for such a trade setup as this if it works out as anticipated

Ok, if you were not following my weekly free price action forex trading signals and trade alerts, then let me enlighten you with what I’m talking about here.

And not just that, there’s something important here that I failed to see as well that I would like to show you.

 

This was the trading setup alert I gave!

forex trading signal nzdcad 110716

 

This Was What Actually Happened

  • price just came very close, about 17 pips from reaching the major resistance level
  • Because I was expecting that price would come and touch the major resistance level, I ignored that Bearish Harami Reversal Candlestick Pattern that formed near the resistance level.
  • The result: price dropped 350 pips down.

300 Pips Profit That Got Away-free forex signals

 

Why Price Did Not Touch The Major Resistance Level?

I’m a curious guy when it comes to forex trading. When I look at any random chart and I see a big price move has happened, I always want to know why.

  • why did price fall/rise suddenly from that level?
  • did price fall because of a major news or was it because of a support/resistance/trendline level?
  • was there any candlestick patterns/chart patterns that I can see there that would give me clues as to what was about to happen so that I can learn to spot these kinds of setups should it form in a similar manner in the future?
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Folks, believe me, this is how you learn price action trading.

And these are the basic 4 step process on how to learn price action trading:

  1. watch & observe price action
  2. ask why price behaves in a particular manner.
  3. look for answers and clues
  4. Once you get your answer(s), prepare for a similar thing to happen in the future so you can trade it.

So that’s what I did…I asked “why did price failed to reach the resistance level and fell down when it was only 17 pips away?”

When I searched the daily timeframe (the timeframe where the signal was given) I saw no clue/answer.

Then I switched to the weekly timeframe…

I saw the answer to my question there.

I saw the reason why price behaved that way and did not reach that resistance level I thought it would reach.

As a matter of fact, I should have known better.

But I failed…I failed to do a “top down technical analysis”.

I will explain what this means later…

This Is What I Saw On The Weekly Chart

  • to the untrained eye, there’s no clue here…it will look like price is just travelling at random, here and there…up and down.

nzdcad weekly chart

But watch what happens when I began to draw trendlines….2 trendlines in fact.

The First Trendline I Drew, This Is What I Saw…

  • it didn’t explain why price fell too early.

NZDCAD weekly chart trendline 1

Then I Drew the  Second Trendline…I Had My Answer!

  • aha! now, I see why!

NZDCAD weekly chart trendline 2

 

Now, you can see what happened. Price could have done any of these:

  1. it could have gone up and hit hit the resistance level I drew and fall back down.
  2. It could have gone up further past that resistance level and hit trendline 1 and fall back down
  3. it could have gone and hit Point 2 resistance level and fall
  4. or it could have gone and hit point 1 resistance level and fall.
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But it chose to hit trendline 2 and fall back down.

Looking For Sell Signals In Lower Timeframes

What I’m going to show you here is multiple timeframe trading technique.

Let’s assume that I did the right thing and I was watching in the 4hr timeframe for a bearish reversal candlestick.

What would I have seen then in the 4hr chart? I would have seen this:

  • notice 3 times price tested the 2nd trendline and each time it tested the trendline, it fell.
  • these were 3 opportunities to sell.

NZDCAD 4hr chart

 

Now, what If I was watching to sell in the 1 hr timeframe, what would I have seen?

I would have seen this:

NZDCAD 1hr timeframe

What’s The Lesson Here?

I did not check the weekly and the monthly timeframes.

If I did, I would have immediately noticed all these possible setups that I missed because my focus was just on the daily timeframe.

So what did I mean by top down technical analysis?

It simply means, when you are analyzing potential trade setups and where price could potentially turn, it is best to start from the larger timeframes and work your way down to the much smaller timeframes.

That is the definition of top down technical analysis.

 

Should You Cry Over Excellent Missed Trading Opportunities?

Should you? No…

Don’t chase after the bus when you just missed…you’d be wasting your energy and time.

Similarly, if you miss a trade, don’t chase it. Let it go.

There’s always tomorrow…better opportunities will come.

You just have to learn from it and move on.

You may also like to read about , how to Trade Elliott Wave Theory In 6 Simple Steps

Hope you learnt something here and once again, as usual, I always end my posts with a request for you to share this, tweet it or mention this in other forex website if you have the chance to do so. Thanks for visiting.

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