Review of a Sub-Optimal Trade

As an extension to my last post, let's take a look at a trade where my entry wasn't as well thought out as I had thought.
The trade in question is an AUDNZD sell. This trade is similar to CADJPY in the sense that I had taken a loss going long last week. Unfortunately, this messed with my mindset a little bit as I pre-emptively had a short bias on this week's open.

AUDNZD
  • Sell: 1.09292
  • Stop Loss: 1.09655
  • Take Profit: N/A (Not Set)
    Risk: 2%
Now that I have summarized my trade parameters. Let's take a look at the daily and 4-hour charts.

AUDNZD 1-Day

Depending on how you plot your daily levels, the last bearish engulfing bar can mark a key level where price broke below it. I typically don't mark key levels on my daily chart. This time frame is good for identifying the larger market structure, but you do miss out on quite a bit of order flow information. Instead, I tend to plot my levels on the 4-hour and 1-hour charts much like the one found below.

AUDNZD 4-Hour

When I was analyzing this pair, I published an idea over on Tradingview. To keep this brief, I'll copy over my thought process:

  1. Price hasn't made a higher high since the morning of August 18th. 

  2. Price made another push higher, but was followed by indecision. This is the first indication that buying pressure has weakened. The origin of this push higher was at the 1.09375 level, which is why it's key to watch how price trades here. 

  3. Price broke above this level briefly on August 28th, but price did not sustain above.

So what could've I done to optimize this entry? Before I answer my own question, I have attached the 1-hour chart below.

AUDNZD 1-Hour

The vertical line is a week divider that I arbitrarily added. Anything to the right of this line marks this week's open starting from yesterday.

Looking at the price performance last week, price tested the 1.09139~ level twice. Price sold off to this level and made an extremely choppy pattern in a rather tight range. This indicates a lack of liquidity with buyers slightly overpowering the sellers. Price sold off again to this level in question just before the close at the end of the week.

To picture an imaginary DOM, this is telling us that very few bids were placed or filled above this level. This explains the accelerated move and pause. After price gapped up and sold to this level on the open, we saw a bullish engulfing bar formed.

I interpret this as offers flowing in are inconsistent and there is buying volume causing the price to spike higher. I probably should've waited for price to have a weaker bullish reaction to this level before considering a trade on the short side.

As I'm typing this post, price came incredibly close to my stop loss but didn't trigger it. I may have my broker to thank for not artificially inflating the price and forcing this trade against me. I remained disciplined and did not adjust my stop loss. I'm still adhering to the 2% risk parameter so that's a pat on the back for me.

My entry certainly wasn't optimal. If I had executed this additional analytical process, I probably would've been able to avoid this sub-optimal entry.