Instrument: EURUSD
Trade Type: Short
Timeframe: 4HR
Entry Price: 1.05797
Stop Loss (SL): 1.05961
Take Profit (TP): 1.05751
Risk-Reward Ratio: 0.28
Outcome: Profitable
Entry/Analysis:
The setup was identified as a classic supply-and-demand shift in a bearish context. On Wednesday, price action decisively broke below a key demand level at 1.05797, signaling weakness and a potential change in structure. On Thursday, this level was retested and acted as a new supply zone, confirming its role reversal. This provided a compelling technical confluence for a short trade.
Anticipating a second retest, I placed a limit order at the 1.05797 level, with the expectation that the supply zone would once again reject price and provide the momentum needed to continue the prevailing bearish trend. I set my first target at 1.05297, with the intention to do a trailing stop to maximise my profit from this trade.
From a fundamental perspective, Friday’s economic calendar included data releases that supported a bearish bias. For instance:
- Eurozone Industrial Production showed a larger-than-expected contraction, reflecting ongoing economic challenges.
- U.S. Retail Sales data, released the same day, came in stronger than forecasted, underscoring the resilience of the U.S. economy and bolstering the dollar.
This macroeconomic backdrop provided additional weight to the technical narrative of a stronger USD and a weaker EUR.
When price retested the identified supply zone on Friday, it rejected cleanly, triggering my limit order and pushing lower. Initial momentum was promising, aligning with my analysis.
Exit/Outcome
Although the trade began as planned, the downside momentum began to wane as price approached the next demand level near 1.05170. Instead of breaking through and continuing to my 2nd target at 1.04770, price began consolidating, suggesting buyer interest at this level was stronger than anticipated.
Eventually, price reversed sharply, retracing towards the original supply zone. This reversal invalidated the trade idea, triggering my stop-loss at 1.05751, resulting in small profit.
Post-trade analysis revealed that while the technical setup was valid, I underestimated the strength of the demand zone near 1.05170. Furthermore, it’s possible that Friday’s USD strength was already priced into the market, diminishing the bearish follow-through potential.
Psychology
This trade highlighted the importance of remaining detached from the outcome and focusing on the process. While the technical setup was logical and well-executed, market conditions are inherently uncertain.
During the trade, I maintained composure, adhering to my trading plan and stop-loss level without interference. However, post-trade reflections uncovered a subtle cognitive bias:
- Confirmation Bias: I may have placed too much weight on the supply zone's rejection and ignored signals of demand reasserting itself below.
Key takeaways for psychological improvement:
- Respect the Context of Market Structure: Even in a bearish trend, strong demand zones can act as significant obstacles. Moving forward, I’ll pay closer attention to multi-timeframe confluences to better gauge the strength of such levels.
- Trust the Plan, Accept the Risk: Losses like this affirm the importance of following a disciplined approach. Deviating from my stop-loss or over-adjusting would have worsened the outcome.
- Detach from Recent Results: The small profit wasn't the amount I originally inticipated, but over a series of trades, sticking to a robust system with positive expectancy will yield long-term success.
Finally, I reminded myself that trading is not about being right every time; it’s about making consistent decisions based on a proven edge. This small profit was a cost of doing business, and with every gain and loss, I gain valuable data and experience to refine my strategy further.
Improvements for Next Time
- Consider Alternative Scenarios: Prepare for situations where price might consolidate instead of breaking through key levels, and adjust profit-taking zones accordingly.
- Fundamental Layers: Evaluate if news has already been priced in to avoid misaligned expectations about market momentum.
Reflection: The trade itself was well-thought-out but simply didn’t align with how the market played out. Losses like this are invaluable as stepping stones toward mastery.
Execution: 3/3
Psychology: 3/3
Overall trade: 6/6
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