Namaste Traders. 🙏
Hope you have gone through my previous blog where I shared a technique of momentum trading in breakouts. However, that breakout failed and a large number of sellers took over and drove the price down twice as fast. But as I always say, a trader should approach the market as an opportunist with a neutral mindset. According to this, no matter which direction the market goes, we should act without panic by understanding mass psychology with the help of the price action.
Today I will share an example of trading and risk management in 4 and 1-hour time frames.
Starting from the left side of the image above, you can first see 'Key Resistance' written in a grey rectangular area. This was the resistance where the price fell sharply by making an all-time high multiple times previously.
Then you can see a very long upper wick candle in a large ellipse shape, which undoubtedly closed above our key resistance. Still, since this candle has a very long upper wick which signifies selling on the higher levels, we can not consider it a strong breakout. This was confirmed by the next 4 red candlesticks one after the other as you can see in the image above which broke the support which you can understand by looking at the channel of 2 yellow lines. Also, it broke the consolidation area where the price spent a lot of time before the breakout which you can see in the pink rectangular area. After this, we saw a small buying and then the price got rejected again from the same area, which earlier was a support but now after breaking downwards, it acted as a resistance. Which you can understand by looking at the circular area and its right side in the image above.
But since the initial down move (which you can understand by looking at the yellow line) was near another support, which is marked as a thick white horizontal line on the chart. Therefore, rushing to take a trade could prove to be harmful, so I thought it better to wait a little longer.
Here, according to my time-tested assumption, the more time the price spent inside a range, the better move it makes after breaking it.
You can understand this by looking at the big red candle present inside the white ellipse area in the chart above. which breaks below the support with a huge volume and that is the place where a risk-averse trader should place a sell order initially for 1:1 risk-to-reward ratio. Which you can trail with lower-low price action.
Which you can understand by looking at the image above, where you can see the initial SL level placed in the 4-hour time frame as well as the SL level placed in the 1-hour time frame, which is placed above the doji candle (an inside bar) formed just after the breakout candle. After which your risk-to-reward ratio becomes more than 1:6. Which you can continuously trail with confirmation of lower-low, due to which your risk is completely eliminated.
But then if everything is so easy then where is the problem?
The problem occurs when you make a trade that is larger than your risk appetite. Due to this, your blood pressure increases with every little fluctuation in the price, and you stop trusting your setup and make panic decisions even when you are in the right trade.
So in addition to learning about technical analysis, you must build a psychology to trust your analysis and trade setups. Which plays a key role in making you profitable.
English is not my first language. So sometimes I use 'Google Translate'. Please don't think that anything I have written in this blog has been copied from somewhere or is AI-generated.
Thank you for reading this blog.
आज के लिए बस इतना ही।
"Keep Learning, Earning, Growing, and Smiling"
🙏