This little article is going to go over why trades can reverse against us. Whenever I enter a trade I always have to consider the first point where price may stall.
To do this is simple, look to the left of the chart and look where price has stalled in the past, the markets respects levels because the market is run by traders who use these levels for profit taking, stop loss areas, etc….
So blindly ignoring the fact that a trade has the possibility to reverse on us, really does expose us to the chance of trades going against us. So how do we use this information. Well its simple because we know price can’t continuously move in one direction we need to apply our logic and use these areas, which are called first trouble areas(FTA’s) to protect ourselves.
Now the simplest way to do this is just move our position to break even (BE) once price hits the first trouble area. If price pulls back we get stopped out but the key here is that we have reasoned out that the trade may fail and duly protected ourselves.
We don’t know which trades will be the winners and which will be the losers. So with this in mind it proves we have to treat each trade the same as the previous and protect ourselves at all times.
FTA’s are not only useful to see where a trade may fail but also to see if the trade has space to move into before we enter. Even if we get the best looking pin bar(PB) we can’t take it unless it has room to move into. This reason alone means we will only take the trades with the best possible chances to succeed.
So this was a brief article to introduce FTA’s and why they are very important. They do take a while to understand but once mastered, they open your eyes to why certain previous trades ended up losers and why they shouldn’t be ignored.
I will expand on this topic further because it is really key to becoming a consistent trader.