How to Conduct an Effective Trading Session Review – 2 of 2

Trade Session Review Example

Following on from Part One at this link: http://yourtradingcoach.com/trading-business/how-to-conduct-an-effective-trading-session-review-1-of-2/, let’s look at an example of a missed trade.

The example is the open of the UK session on April 6th, 2010, which provided us with a beautiful Asian session breakout failure trade.

The three blue horizontal lines represent pre-session support and resistance, the upper two bracketing the Asian session price action. The green bullish breakout candle was actually the last minute PRIOR TO the commencement of the UK session (07:59 GMT). And it was failure of this breakout that set up the best opportunity of this session. Assuming then that we missed the trade, let’s conduct a review to see how we should have seen it.

We’ll look at the one minute chart for detail. (NOTE: I’m using timeframes that I trade, but of course when you do it the principles should be applied to whatever timeframes and markets you personally trade)

And we’ll work through the Q&A that we used as an example in Part One:

  • What signals did the market provide that should have alerted me to the trade setup?
  • What was the ideal entry point? What signals (if any) did the market provide, which could have led to identify this ideal entry?
  • Where, with the benefit of hindsight, should the stop have been placed? What signals (if any) did the market provide to identify that location?
  • What was the optimal trade management strategy, in order to minimize risk when wrong or maximize gain when right? What signals (if any) did the market provide for moving the stop to breakeven, or beyond?
  • What was the optimal exit location or locations, in order to minimize risk when wrong or maximize gain when right? What signals (if any) did the market provide to identify these ideal exit locations?

 

What signals did the market provide that should have alerted me to the trade setup?

Breakout of a narrow range Asian session often produces good opportunity, either as a straight breakout trade, or as a breakout failure. So, I should always remain alert and prepared for this opportunity. It’s as simple as that! I need to specifically note the Asian Session ranges, as had been done here via the support and resistance lines, and remind myself that any test or break of these levels should be monitored for a potential trade.

In this case, the breakout occurring prior to the session opening (even in the last minute) makes it a little more doubtful. My bias was therefore slightly shifted towards a breakout failure, but I always remain ready to change that bias if the market accepts prices above the breakout point (pullback or stall which remains above the breakout point). Either can produce good opportunity, so I should be on alert for one of two possible setups – a breakout failure or a breakout pullback.

 

What was the ideal entry point? What signals (if any) did the market provide, which could have led to identify this ideal entry?

Candle B confirms my slightly bearish bias. If the breakout had been genuine, the session opening should have taken price to close at new highs. Instead, the first minute produced a lower close. There is opportunity for a small scalp on the one minute chart as this potential breakout failure will likely bring at least some selling orders to the market. Target for the scalp would be the point of initiation of the breakout in the vicinity of candle D, assuming I was able to hold through the pause shown by candle C.

The primary trade opportunity though comes at the point at which the bulk of the breakout traders accept they’re wrong. The lower momentum rally and retest attempt, from the lows of candle D, has me ready for this failure.

The ideal entry point would involve a break below both the initial breakout candle A and the swing low of candle D, as this would clearly show as a failed breakout on all timeframes, in particular everything up to 5 min which would show price falling below the lows of the candle following the breakout (You can see that on the 3 min chart above as price breaks below the uppermost red candle.)

My preference is always for multiple part entries, usually all-in, scaling out. So let’s say I put on two parts here at the entry, which occurred on candle E.

 

Where, with the benefit of hindsight, should the stop have been placed? What signals (if any) did the market provide to identify that location?

Stops above candle E would be fine. More conservative would be above the highs at B, although any price above E would really invalidate my trade idea (breakout, initial pullback, failure to return to previous breakout highs). The stop was never threatened.

 

What was the optimal trade management strategy, in order to minimize risk when wrong or maximize gain when right? What signals (if any) did the market provide for moving the stop to breakeven, or beyond?

Part 1 for me always involves a target. The ideal here would be somewhere just above the lower Asian session support, within candle F.

Part 2 will either have a further target, or a trailing stop of some kind, dependent on the expected market environment. In this case, as we’ve broken out of the narrow range Asian session, and it’s the first ‘real’ trading session following the Easter long weekend, I would anticipate the potential for a larger move. Part 2 could have its stop move to breakeven on achievement of part 1, and would then make use of a trailing stop.

 

What was the optimal exit location or locations, in order to minimize risk when wrong or maximize gain when right? What signals (if any) did the market provide to identify these ideal exit locations?

Part 1 was discussed above.

I expect I would have been quite comfortable with a decision to exit on candle G. While the best trailing stop position is usually above retracement swing highs, in this case I would have likely brought it closer rather than giving back such a large portion of the gains. The higher volume on the first green candle from the lows, combined with the inability to hold below 1.5175 resistance, would lead me to take an exit somewhere on candle G.

In hindsight, holding the stop above the 1.5200 round number would have worked well, but that’s rarely going to be an option I would consider. I’d be very happy with a candle G exit.

– – – –

So that’s an example. Yes, it’s all hindsight based, but it’s a matter of reviewing the chart with this hindsight in order to see how I should have traded. Reinforcing ‘good analysis’ with the benefit of hindsight will hopefully help me see it ‘live’ next time.

An important point to finish up:

Please be aware that ‘perfect hindsight trading’ does not only involve those trades that win. We know that often an ideal trade setup and entry will result in a loss. This same process though can help us to review the price action, as it should have alerted us to the potential trade failure, and helped us to minimize our risk through wise exit decisions. Perfect practice of a perfect setup, in an unpredictable and uncertain market.

Happy trading session reviews,

Lance Beggs


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YourTradingCoach – Admin

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