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Trading $GBPNZD – Finding the right trade entry

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Yesterday was a huge day for the Elite Zone members. In our weekly letter (weekly trading plan sent to the members each week), they received trading ideas and trading scenarios that suggested to short $GBPCAD, $GBPAUD and $GBPCAD due to potential GBP weakness.

These trades resulted with staggering 600 pips profit… (and still counting). 

In this blog post I want to share with you some considerations I’ve taken in order to find the right trade entry zone… but before I begin, some background..

 

Over the last few weeks, the focus in the Elite Zone was on finding bearish setups on $GBPNZD. Higher time frame analysis, suggested that this pair is ready for a bearish correction move.

On my TradingView page (follow), I’ve posted this chart with the different trading scenarios I was monitoring on $GBPNZD:

image

Yesterday’s setup was setup number 5 that you see at the chart above.

* This setup was sent to the members when the price was near 2.065 and it was climbing towards 2.07  

Bearish harmonic trading pattern (BAT) and structure zone:

image

The hourly chart above shows you two entry zones that were sent to the members on yesterday’s trading plan letter:

  1. Structure zone near the 2.07 level. This price zone acted as resistance before (marked with blue circle) and therefore was a potential reversal area to monitor.
  2. Pattern completion near 2.075

With a 50 pips difference between the two potential reversal zones, the question was which level should we use for our bearish entry.

One of the commonly known fears of new traders is the fear of missing out – They hate to see a good trade going on without them in it. This fear usually drives new traders to jump into trades too early, without the required confirmation signal (what I call the aggressive approach entry) and since they know that they’ve entered too early, they lack the confidence and patience that is required with such approach. The results most often are the same – The traders exit the trade too early, with a loss, and see it later goes in the desired direction without them in it.

While anyone can become a good analyst and chartist, not everyone can turn their analysis skills into successful trading skills. Trade management and risk management are the difference makers.

Back to GBPNZD setup:

As mentioned above, there were few entry zones that we had to choose from:

  1. Trade the 2.07 structure with stop above the previous high
  2. Trade the 2.07 structure with stop above the pattern’s completion zone
  3. Trade the pattern (risking missing out on the trade if the price would have reversed from the structure zone)
  4. Trading both the structure and the pattern by scaling into the short position.

The first two options are exactly what I call and mentioned above as aggressive entry. Those who choose this approach basically assume that the price will follow the trading plan without any confirmation that it will but since they don’t want to miss the trade they are willing to risk more in order to be in it. The stop loss was between 50 pips (minimum) to 150 pips (as was technically required).

The third option, is relevant for those who trade the patterns. For such traders only when the pattern is complete the trade becomes valid. There a risk of missing the trade if the price will reverse before the PRZ but rules are rules and you have to follow them.

The forth option is what I chose to trade and it included scaling in techniques. Scaling in is when you add positions as the price progress and there are two options to do it:

  1. Add positions as the price goes against you (in this case, towards the completion of the pattern)
  2. Add positions as the price goes in your favor (meaning you are starting to accumulate gains).

The first option involved higher risk of course. Technically you have no way to know that the price will indeed follow your expectations and you may find yourself with two loosing trades with double the risk. You avoid such a scenario by using some risk and trade management techniques which suggest to start with a small position size (smaller than your normal trading size) and increase position sizes as the price continues to work against you – Although it is still risky, in that way if the price follows your trading plan, you get to have the biggest position size at the best possible entry and that can trim your losses very quickly when the price accelerates in your desired direction.

 

So what I did was to place a sell limit near 2.07 with half of my regular position size and another sell limit near the PRZ (higher than the first entry zone) and in that way I had to endure a 50 pips loss but with half size position only.

Scaling into a position is a risky technique and therefore requires strict risk management rules, but it is a great technique to use in these kind of situations. It all went fine once the price reached the PRZ, changed its direction and turned the losing trade into a profitable one fast.

Summary

Of course there were many ways to trade this setup (for example to wait for the reversal to take place, confirm that the price breaks down below the structure zone and than trade it) but it is all a matter of kind of a trader are you, what is your risk tolerance, your experience and what are your trading rules.

The most important things is to have a trading strategy and to follow it with a written down trading plan that is prepared in advance. Don’t act on impulses or under the influence of emotional trading (greed and fear)

 

 


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