When scanning the market I first checked any Strike Trader setups before reviewing potential discretionary setups which could be interesting to our readers. When scanning, I quickly found a potential (discretionary) trade setup on the GBPNZD, but this particular morning was different than others. As I scanned the charts early in the day, one of my two Burmese kittens (Lily) decided to join me in my ‘pre-London open’ analysis.
HOW A KITTEN SAVED A TRADE
Later during discretionary analysis, Lily started meowing in what seemed like disagreement with my analysis (later it became apparent that she really wanted breakfast and was less concerned about the markets than I had thought). However, after careful consideration and reviewing other time frames, I realized that the setup was not as interesting as I had first thought. I needed to start over with a fresh view. Here below is a screenshot of the long I was contemplating.
I was lucky: Lily the cat saved me from taking a bad trade.
Forex traders all need ‘a Lily’ that guards them from taking trades that seem well setup but in fact are not. The trades look good just because of boredom or our need for a trade, and our rosy glasses hide the ugly truth of that setup. As Forex traders, our focus must always be sharp and critical so that ‘weak’ trades never pass our defenses. At the end of the day, week and month, mistakes add up to a whole bunch of unneeded losses.
KEEP FOCUS AND STAY SHARP
After critically reviewing the trade from a different time frame perspective, I realized that I was only focusing on the smaller picture and skipped any serious examination of the bigger market structure. When doing so, I saw that the above mentioned bull flag on a lower time frame was in fact happening right at resistance on a higher time frame (top of the uptrend channel and Fibonacci resistance layers).
After another round of chart viewing, I noticed that the EURAUD bearish rejection trade looks a lot better in fact. Not only was there a big wick at the 78.6 Fibonacci retracement level but the trend over the last weeks was down (ever since the break of support trend line (purple)).
EURAUD TRADE SETUP
The big bearish pinbar at the top of the down trend channel has multiple advantages:
- Clear price action confirmation signal (4 hour candle wick);
- Clear stop loss invalidation level which is above the pinbar and trend channel;
- Clear target at the confluence of bottom of the channel and -27.2 Fibonacci target.
The entry could be either at the retracement of the pinbar candle, the open of the new candle after the pinbar candle, or the break of the low of the pinbar candle. Will this trade work out?
Traders never ever know beforehand! However, the reward to risk is about a 2:1 (depending on entry) in a downtrend channel so it’s a good discretionary setup in my book. Luckily, due to Lily, I was able to avoid a nasty GBPNZD trade and focus on a better EURAUD setup.
The advice of the day: stay focused at all times – no matter how early or late it is – before trading. (And take a kitten with keen interest in markets.)
Did you ever have a similar ‘Lily’ saving moment? Tell us your story down below? How do you stay focused during trading?
Thanks for sharing and Happy Hunting!
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