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Trade Management And Stop Out

For this weeks trade post, I want to talk about the EURAUD setup that I posted for the weekly Forex and Crypto setups.

This Forex pair had broken out of some type of ranging activity with two strong momentum candlesticks.  The basing at highs is generally bullish but I took into account:

  1. Markets mean revert in some form after large thrusting moves
  2. Price breached the high was was rejected quickly
  3. The weekly chart had a strong correction prior to this rally

The trade entry I made as mentioned  on the chart was on the failed test of highs taking into account the context.

For this type of entry:

  • I use half of my usual position size because it is counter to the immediate trend
  • I am aggressive in cutting risk
  • I was not overly impressed with this setup as the probe above highs had very little travel to higher prices

As a reminder, here is the chart for the week:


So what happened?

I got stopped out.

Here is what unfolded and for clarity, the four hour chart will be used.

  1. This is the area where there was price rejection that, in the context of the chart, was a short entry
  2. This is the area of the close and the trade was entered in this location.  The stop was an ATR stop loss formula which placed it above the highs
  3. Price breached the support zone of the range and there was zero follow through.  Once the support zone was broken…..
  4. The stop is moved to this location and was subsequently stopped out for a portion of the original risk

The question some may ask is why I was so aggressive with the stop.

For this trade to work, I need immediate (within 1-3 candles) positive feedback once price touches below support.  This would show there was a true imbalance.

Think about it this way:  We have a rejection of highs that was immediate (same candlestick on the trading time frame) – which can mean, among other things, that sellers are stepping in with a bearish bias on this setup.

Price breaks the support zone and if there was true bearish intent, we would not see price come back inside.

In a nutshell – price was not giving positive feedback given the context and the best position was no position.

Regardless of price moving further down or not, the plan is, on these trades, to reduce the risk to a point that would invalidate the trade.  If price was to trade back up inside the trading range, we are not seeing positive feedback and I want to be out.

Price traded back inside the range giving negative feedback and with that, the trade is over.

– In other news, I shorted the USDCHF at 0.9932 and that setup was shown in the updates here.


1 thought on “Trade Management And Stop Out”

  1. Hi SD, on the EURAUD this week, I also suffered the same fate. I had to reduce my risk when I saw that there was no follow through on the break of support and price was moving up with momentum.
    The best we can do is to set up our trades using an edge….and taking action when price action is telling us a different story. The lack of follow through at support was the exact time to adjust open risk on trade. The setup failed…but the trade itself was a success because of the reasons why it was taken, how it was managed, and how it was exited when the setup failed.

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