Price Action, are a very critical part of trading and always aid in the removal of emotions from any trading scenario.
I've posted a couple of analyses recently regarding this pair, and one of them turned out to be an opportunity that would have been a loss. It's just as important to know when to exit your trade as it is to know when to enter them. A lot of the publications that I make here are almost certainly geared towards levels to pay attention to for entering, so this is an example of how we use the same trading method to determine that we should absolutely no longer be in a specific trade.
Refer to my previous GBPCAD Analyses below for reference.
If you've done your due diligence as a trader and have properly identified a level you think the market is adhering to, when that level is broken, it should maintain the reactionary characteristic. There are many fundamental and technical ways to describe the reasons why, I won't get into that here, but I'll presume that you've heard that old support becomes new resistance and vice versa.
Case Study: Knowing when to close a losing trade.
Last week after a confirmed break on the the GBPCAD was gearing up for a move lower but first we were looking for price to come back to the level that was broken to indeed confirm that a break had occurred. The pair began to sharply rise late last week which was expected for us to get into a short...however when the pair began to reach the key technical level it did not stop. Illustrated above you can see a reactionary zone where price was expected to stop on the 1 hour time frame...no such stop happened. This failed retest is visible on the 4 hour and as well.
The Expected Reactionary Zone is taking the that you identified and the high (or low depending on direction of trade) of the candle that confirmed the break of your key technical level.
Here is a of the same trade output:
In this you can see the same trade, the confirmed break followed immediately by a candle that does not retest. Many of you may have noticed for my trades that I tend to use larger time frames yet many of the moves that are identified happen largely on the smaller time frames as well. The core reasoning behind using higher time frames is it essentially acts as a filter. For those that trade news, and rumors, and reports....these can have a tremendous impact on a 15 minute candle...but to a daily or weekly candle...it's part of the bigger picture. As long as we account for the flexibility of the rumor we are able to rely on candle closes as a key identifier in our trade decisions.
Traders need to account for market reactions in their strategies because if it was as simple as old support = new resistance, we would be able to predict highs and lows with 100% accuracy. That flexibility has a limit, and that limit is when the daily/weekly candle closes.
The way this is used to a trader's advantage is to help in removing the emotions from a trade decision. Do not marry yourself to your own ideas, traders need to stay agile, and adapt to market condition's as they change. If the market gives you relevant info that nullifies the analysis it cannot be ignored.
If the Daily Candle closes above (or below depending on trade direction) an identified key technical level after a confirmed break, the retest of that level is considered null and void, any trade taken in anticipation of that retest should be closed immediately. Furthermore, that identified key technical level is now considered invalid and should be removed from the picture as it is no longer controlling market conditions.
Thanks everyone for reading and I hope this helps in some manner. If you enjoy what I have to offer, feel free to comment, follow or "like"