We will analyze the short trade we are planning to take on USOIL. Please read the entire post if you want to have the full idea of what we are doing here.
REVERSAL SITUATION: The price has reached a significant Resistance zone and broke the bullish compression
CORRECTIVE STRUCTURE: Now, after the bearish movement from the resistance zone, we can see a corrective structure. This type of structure is formed by an ABC pattern and moves sideways. Check the yellow arrows, all of them are examples of previous bearish corrective structures, and we will see the resolutions of them to use them as a model to trade the current one.
TARGET and STOP: Our Target is the next support/resistance zone. There we will close our positions. Our stop is above the corrective structure. There we will assume that our view was incorrect.
ENTRY: We will wait for the same behavior as all the previous corrections. Check the images
Based on that, we will wait for 1H candlestick to reach the lower trendline of the corrective structure and corrects it there. After that, we will set our entry-level below that correction.
RISK AND RATIO: The risk Reward Ratio we are aiming at this trade is 2, meaning that we are willing to win twice of what we are willing to risk. We will take a 1% risk on this trade
As a final idea, it is essential to understand that profitability on trading comes from creating a statistical advantage over a certain amount of trades. To do that, you need the correct relation between your Hit Rate (how many times you are right) and your Average Risk Reward Ratio.
CANCELATION: When we develop an entry, we must be ready for a cancelation of the setup. Meaning that the price didn't move as expected, and the price didn't trigger our entry. There we will be ready to cancel our setup and start from 0 with a new analysis
REVERSAL SITUATION: The price has reached a significant Resistance zone and broke the bullish compression
CORRECTIVE STRUCTURE: Now, after the bearish movement from the resistance zone, we can see a corrective structure. This type of structure is formed by an ABC pattern and moves sideways. Check the yellow arrows, all of them are examples of previous bearish corrective structures, and we will see the resolutions of them to use them as a model to trade the current one.
TARGET and STOP: Our Target is the next support/resistance zone. There we will close our positions. Our stop is above the corrective structure. There we will assume that our view was incorrect.
ENTRY: We will wait for the same behavior as all the previous corrections. Check the images
Based on that, we will wait for 1H candlestick to reach the lower trendline of the corrective structure and corrects it there. After that, we will set our entry-level below that correction.
RISK AND RATIO: The risk Reward Ratio we are aiming at this trade is 2, meaning that we are willing to win twice of what we are willing to risk. We will take a 1% risk on this trade
As a final idea, it is essential to understand that profitability on trading comes from creating a statistical advantage over a certain amount of trades. To do that, you need the correct relation between your Hit Rate (how many times you are right) and your Average Risk Reward Ratio.
CANCELATION: When we develop an entry, we must be ready for a cancelation of the setup. Meaning that the price didn't move as expected, and the price didn't trigger our entry. There we will be ready to cancel our setup and start from 0 with a new analysis
