I made an unprofitable trade today and i wanted to analyze the reason it became a bad trade to identify what i did wrong…
I use fibonacci retracement levels.
As you can see in the first picture price had been dropping, so when i saw the first
green candles i though a reversal was near so drew the fibonacci from [I]the bottom to the top[/I]… I then believed i had hit a support level so i got long but as you can see i was wrong.
As you can see it was quite near a resistance level, but not all the way… I’ve read in the babypips school that it doesn’t have to be quite on spot but you shall rather see the areas as as areas of interest or kill-zones?? What does this mean? :33:
Before i did the trade I must admit that i had both these scenarios in my head, that it could just be a temporary reversal and then continue the down trend…
I think my example was really alike with the one in the school
But the green candles and the wrong drawn fibonacci got me…
I was guessing that it would be a reversal, and this is dangerous in trading, however i’ve never encountered this. Until now.
What are your opinions, have i analyzed my mistake correctly? :33:
The chart shows a clear line of resistance with a false breakout (price closed clear of resistance but the next bar reversed back in to the range).
With price flowing down, it touched the clear support line and broke through it. This time holding below for a few bars.
Think short.
Support becomes resistance as price comes back and reacts to continue the down trend.
It would help if you backtested, plotting fibonacci on old data. Pick two swing points, a high and a low. You can either match fib levels with price action or other indicators to find confluence, eg a fib level with a support line. Or wait and watch how price reacts to each fib level. Have a plan before hand. I don’t feel you had a specific entry method or an exit.
An area of interest, is a location where you expect something to happen. Price sometimes hits it perfectly to the pip, sometimes its off by a few pips, that’s why it’s an area, a zone.
Well the plan is just to buy when price hits these levels. Do you mean with a specifit entry/exit method that i should add some kind of confirmation, like monotoring the following candles how they behave and then decide?
Let me add something to what you already mentioned, which I would take heed to because you nailed it.
Fibos, like anything else, are not good to be used as a standalone. You need to have a confluence of other indicators in order to make an educated trading decision. By adding a confluence, you are supporting the evidence or you could be repudiating it. When you get other indicators lining up, then it adds more confidence to your position.