5R Trade Breakdown!
This week I checked back in with Grant to find out about one of his best trades, a 5% short in $AUDUSD.
I plan to post more trades our traders have taken as I think it will be beneficial to see the some of these with a detailed breakdown of why they made certain decisions. It will hopefully also provide an insight into what we teach at KB if you are not already a member. If you would like to learn to trade the way we do we offer a very comprehensive Advanced Trader Course with over 20 video modules to help guide you through these methods. With this course you will also gain access to our three telegram groups and access to the team here at KB to ask any questions you may have!
Trade Idea: Daily Bearish Engulfing
Most of our trade ideas will start from the daily timeframe. The great thing about having a daily bias like we do in this example (Bearish Engulfing) is that we have a target based on this timeframe. We then drop down on to the hourly chart to pinpoint our entry and stop, with a daily target. These are the trades that provide a good risk to reward.
If we zoom in we can explain the bearish engulfing.
A bearish engulfing indicates that earlier on in the day buyers tried to push the market into prices higher than the previous day but failed to keep the market at these prices by the end of the day. By the end of day in fact, the sellers had pushed the market below the low of the previous day and this is where we then closed, engulfing the previous day’s range. You can see that we tried to rally into the daily level at 0.76682 but saw heavy rejection just ahead of this level so we can establish that this is occurring from a compelling location. We are now starting create a story behind this trade.
Our target is the next daily swing but after zooming out again we can see we have a double bottom in the market at 0.75620. Most traders will see this level as strong support now and therefore liquidity is likely to be building up below this level in the market as buyers stop losses and sell stops of breakout traders accumulate. Areas such as these have a high probability of being probed adding further confluence to the target.
By now we have our daily bias and our target sorted. The next step is to move onto the hourly time frame to see if we can find an entry and a valid stop location for the trade. (See below)
The blue box highlights the range of the bearish engulfing that we identified on the daily time frame. Moving to the hourly time frame Grant has drawn in two levels of interest (green lines), he identified the higher hourly level as being untested with Fibonacci confluence and therefore a valid place to put a sell limit to take it short down to the next daily level as we discussed previously. Grant was filled and we saw a shooting star rejection candle from his area of interest.
The ‘X’ marks Grant’s stop location at the beginning of the trade, it is above an hourly bearish engulfing and he believed that if price were to reach this level he would be wrong on the trade and the trade idea would no longer be valid. Stops can be trailed throughout the trade as long as these locations are valid and for good reason.
Grant was able to trail his stop on two occasions within this trade and I will explain the reasoning behind both.
The first opportunity to trail the stop occurs after the initial reaction from his order, price has confirmed a strong bearish reaction away from the level and he believes that price shouldn’t be getting back up to this level if we are as bearish as we think we are.
The second trailed stop is more subjective than the first. We have a rejection of the lower hourly level that grant highlighted before we see a close through the level, but we fail to close at a new low (i.e. we fail to close below the previous hourly low), this is the subjective part as by this point in the trade we are so close to target that Grant doesn’t believe we should be getting back above the level and that we are finished with this area.
As we can see, within the next 2/3 hours price trades nicely down to target. The reason we see such a strong punch through this level is due to what we discussed earlier about the double bottom. This is the liquidation of all the stops waiting below this “strong” support level.
I hope you enjoyed this breakdown and gained something from Grant’s trade here. Until next week!