ForexSpirit

I sorted of flip-flopped a bit today.

Price action was bearish all the way from the opening bell for the week. My immediate reaction on viewing the one hour chart was to go long. The 5:00 EDT bar looked to be ending as a doji so 1.3970 would be an important support level. Long I went.

Bias: long
Conviction: medium

Price had been stuck in a 10 pip range (between 1.3990-1.4000) since 5:35 EDT. I was sorely tempted to go long at the base of this range right at the start of the 6:00 EDT hour, but I’ve been burned by that in the past so I held off.

When price broke out to the north at 6:10 EDT I entered long after price had pulled back a bit and then pushed up again. Price retreated soon after back into the range and my long looked to be part of a false breakout. I’ve come to view a false breakout as a very high probability setup, especially during this hour when the market is often ranging and quiet. For that reason I immediately flipped my position to short, going in strong with two 5:1 entries. It was faster to enter two trades than to update my order size and then enter.

In hindsight those two entries south don’t look too smart. What did I miss?

I know that not every false breakout is really going to pay off. I see them as high probability not a guarantee, so I’m not beating myself up for having to manage the position for the remainder of the hour.

One minor detail that might have given me an extra second to think and reassess was the fact that the top of the range was a round number: 1.400. Round numbers tend to imbue an extra layer of support or resistance. The false breakout bumped back down into 1.400 which was now acting as support. In my haste to act on spotting a false breakout setup I didn’t give enough credence to the power of round numbers.

In the end I just had to play the hand I’d dealt myself. I went in with a third entry 30 minutes later after what looked like another false breakout attempt north. When there was no follow through down and instead a break to a new high I bailed on half my position (in essence offloading that last leg), so that I would be better placed to average down if price broke up to 1.4020 (where I was eyeing the next best resistance level).

As well as viewing the price action so far as being comprised of some horizontal ranging, it was also possible to see it was an upward sloping trend channel (especially on the 5 minute chart).

When there was no clear break up aiming for 1.4020 but instead a small retrace down I figured that the trend channel line was holding and we’d be going back down to test the bottom end of the trend channel, so I got in short again.

Price seemed to have broken the bottom of the trend channel when it reached 1.4000 so I held on to see if it would continue to move down. I was targeting 1.3995 as a TP location.

After two attempts to break through 1.4000 price started moving back up. It was already well into the 7:00 EDT hour and I figured I’d given this sequence as much room as I could afford, so I closed out and took the loss.

If I had closed out when price was just below 1.4000 I would have been BE for the day, but I had elected to hold on and try and extract some profit for the day. It was not to be.