When Do We Know the Trade is Over?
Hello, traders. Welcome to the Pro Trading Course and the third module, “Swing Trades: Follow Global Macro Trends.” In this lesson, we are going to teach you how to know when the trade is really over. And I’m not talking about the trade that hit your profit targets or the trade that you got taken out on a trailing stop.
I’m talking about the overall idea to short a market or to go long on a market. Now we’re going to go back again to the pound/yen chart. And if you remember correctly we took this trade at this Fibonacci cluster that confluenced with this heavy bull/bear zone right here with our stops above the previous high and our targets right here.
Now, let’s imagine that you were actually trading the breakout of this bear flag. And this was your first target and this was your second target. This is a very good trade idea. This, in fact, is an excellent trade idea. You go short at 163-69. You hit your first targets, you move your stops, I’m sorry. You move your stops to break even and then you trail your stops right here.
Why you’re going to trail your stops right here? Because your targets got hit, you had a retracement, and then you had a very strong push to the downside. So this is the next logical structure where your stops should be trailed. You already know this because we went through how to trail your stops on previous lessons.
But what happened? Here is that… You got taken out on the trail stop, which is not bad at all because you took 400 pips on the first part of your trade and you took 300 pips on the second part of your trade, which makes a 700-pip trade, which is not bad at all, let me tell you.
But your trade idea was not finished because price didn’t hit your overall target. Now, here is where you ask yourselves the question, “Is this trade idea over or can I re-shore this market?” And the answer is, “Yes, you can still re-shore this market because you already know where the bull/bear barrier is.” We have a rectangle, a pitch rectangle right here, and this is the bull/bear zone, which means that if price breaks above this bull/bear zone, it will also break with this down structure marked by this dotted trend line or this dotted downtrend line.
Now, if that happens, we are no longer looking to shore this market, but rather to go long. Now, what are you going to do then? If you’re still looking for short opportunities but you have not encountered one, you can wait for a clear break of this zone of support and a re-test for a high probability setup. But the thing is that this zone has been tested as support so many times that you are going to encounter a lot of buyers here, and is going to make a breakout re-test trade very hard.
So it’s better for you to wait for price to retrace back to a very strong level, which could be the bull/bear zone mark by the pitch rectangle or the next zone of resistance, which we haven’t marked yet. And we are going to do right now. You can see that it has been tested here once, twice, then it was tested as resistance. So the zone that I’m talking about is this one right here.
Now, we can wait for a re-test of this zone, which also confluences with the overall 38.2 Fibonacci retracement. Remember, we had the 50, the 61.8, and I just added the 38.2, because we are way below the 15. So, we needed to add a new one, and we are going to wait for that and see… What happened here is that we did had a clean and breakout, but, I mean, there are so many buyers here waiting for price to come to these levels to make it go up that is… I mean, you are going to be taken out right here at break even and not making even 100 pips.
So, we are going to wait for this zone to take place. And look what happens here. When price comes all the way up here, it hits our zone perfectly at the 1.62, 27.6. Now, let me zoom in right here at where we are at, and it confluences perfectly with the 38.2, and it confluences perfectly with the small Fibonacci from this high to these lows at the 76.4.
So, we do have a very high probability setup right here. Much, much better setup than a break and a re-test with no Fibonaccis at all. So, we are going to wait for price to hit this level. We’d see that we have a candlestick formation right here, a bearish candlestick formation that notates a strong rejection of this zone, so we are going to go short again right here with our stops above the previous high on the bull/bear zone.
And the first targets, of course, are going to be at the same zone as the first trade. So, we are going to be taking a one to one risk to reward ratio for 230 pips. And what happens here is that we hit the first target, so we take out half of our precision, we move our stops to break even, and now we do have a clean break to the downside.
And what we’re going to do here is that we are going to wait for a re-test of the zone. Remember that the support and resistance areas are actually zones, not just lines. So what we could have done here is after the break and re-test, adding a position, putting both of the stop losses above this high. So we have now two stop losses, and we are riding now half of a position here and half of a position here. Or, I’m sorry, half of a position from the first entry and a full position from the second entry.
And what happens is that now the trade is really over because we have hit the overall targets. Now, let me zoom in again, and let me show you where these targets really are. We are now at the very lows, or our very important zone of support where buyers are really going to come in. So, you have to read the market.
This is a bull/bear zone. When price is trading under it and re-tests it, you are going to find sellers, like right here or this buyer zone or this support zone that we…or where we are going to find a lot of buyers.
And you can see that this is the forward chart. And we’ve had one, two, three, four, five, four, five four-hour candles now within a very tight range and very long weeks, which means that there is a real struggle here between buyers and sellers. And buyers are keeping price above the zone. So this is how you’re going to know when the trade is really over or not.
And not only that. We are also going to use Fibonacci retracement levels to mark our exit points. Well, the reason that we’re going to use this retracement is because a lot of traders are going to be watching them. And if we find confluence with these big retracement levels and zones where we are going to find buyers or sellers, where, well, we have confirmation that at that zone is where our trade idea is over.
Now, we’re going to grab the Fibonacci retracement level and we are going to calculate the extensions from this low to this high. So we are going to grab the Fibonacci too and calculate the 161.8. And as you can see, the Fibonacci 161.8 comes exactly to the 156.10 level, which is the zone that we have marked where buyers are going to be at.
And the reason we are going to use the 161.8 is because that is the extension that is mostly going to be traded, meaning that Fibonacci traders and, well, professional traders overall are going to be looking at this extension for their exits too. And an explanation is that if price comes all the way down to these lows, it has retraced 100%. But if it continues and hits this level it has retraced 161.8%. And with this clear or with this level confluencing perfectly with this zone, we know for sure that this is exactly where we should have put our targets.