Hi James,
It is hard to say for sure what is going on here since we do not have enough data on the chart to put the trade in proper context. Some observations by just eyeballing the chart:
1. You have a trend, but we cannot see how long that trend has been in effect. We need to see what the average length of a trend is for this issue. The trend may have been getting a bit tired by the time you entered. We never know when a trend will end, but entering into a trade with a trend that statistically should be nearing an end is a lower probability trade.
2. If you look at the size of the candles in the trend and then compare them to the sharp move up, there is a relatively large difference. Sometimes you will see this last push at the end of a trend that exhausts the trend. It could have been the end of a 5th wave among other things. We cannot tell from the chart.
3. If you put a regression channel on the upward trend, most of the candles would have fallen between the upper and lower parallels of the channel. 95% of the candles are expected to fall in this range. When the sharp move up occurred, it appears as if a number of candles in succession fell outside the channel. This behavior is not statistically expected and in a trend like this, it indicates a change in conditions, or a red flag. Contrast this with a trend with a lot of volatility.
4. Based on what we can see you have a trend without any significant pullbacks on the chart. When you start to develop a larger pull back as occurred where your green arrow is without a significant previous pullback, for me this is a warning sign. Often when a larger pullback does start to develop in this scenario the pull back is greater in time and price than previous pullbacks and more unpredictable. Look at the size difference of the previous pullbacks on the posted chart and compare them to where you entered at the green arrow. When I see this I start to think reversal.
5. It is good to trade in the direction of the daily candle but on the 5 minute chart, in my opinion, you are a bit too far away in time. The hourly would be more relevant.
In hindsight you had some reasons not to take the trade.
You also had some things going for you with me seeing why you entered the trade.
a. Look at the red candle with the pin bar just touching the blue MA about halfway between the 20:00 and 11 on your chart. Now look at the green candle right at 11. I cannot tell for sure since I cannot see the tail, but if you drew a trend line from that pin bar to the area of the likely area of the tail of the green candle at 11, your trend line would probably pass near the open of the candle you entered on, possibly acting as support.
b. If you drew a fib from this same red candle with the pin bar to the high of the trend/thrust, you would have about a 50% retracement where you took the trade.
c. Now you have about a 50% fib, a 23% fib, R1 and probably an upward sloping trend line all in close proximity, a logical area to watch for price to bounce back up.
d. Now draw a trend line from the high of the trend downward along the upper wicks toward the green candle where you took the trade. The green bar where you entered looks as if it would have closed above this trend line. This alone, depending on your trading plan could have been an entry signal.
e. The green bar where you entered is a strong outside bar which closed at the high. Selling pressure was not strong enough to push price down from the high. Some may consider the red bar prior to the green bar you entered on a mini pin bar with price unable to go lower at R1 and your fib level. Price action indicated a reversal or a move back up.
f. Time wise the pullback where you entered seems to be about consistent with the other corrections, depending on what candles you consider measuring each pullback from. However, this pullback is larger and steeper and may be a wave of larger degree. This needs to be added into the overall mix of conditions, and accounted for as to its possible affect on the trade.
My advice would be to develop some effective filtering techniques to identify the warning signs. Just because a setup looks to be a great trade, mechanically meeting all your criteria, does not mean it is when you step back and look at the surrounding conditions. Being able to exclude low probability setups camouflaged as high probability setups is important. Filtering is money management. It frequently prevents you from suffering unnecessary losses by entering into losing or lower probability trades. Evaluating risk is much more involved than just considering position size, entry point and stop placement. Properly weighting each finding of a potential setup, positively and negatively, and then putting it all together in a big picture will often provide a valuable perspective.
"D"
