Lost Opportunities

I've discussed reverse trades in prior posts (Types of Trades). After Monday's experience I need a new approach.

The Prediction

With 68 pips the 3am GBP LC Grid predicted that the currency would break in one direction, but would ultimately reverse with a 80% probability.

Quick Start / Quick Ending

Two hours later, the GBP trips the SELL and quickly jumps back up forming a hammer. By the end of the morning, the GBP completed the reverse, end of story.

Analysis

I didn't jump on this in time and missed the opportunity to make 93 pips. It got me thinking about how to do these. I went back 6 months to review all reverse trades. I was surprised to see a couple of things. In general, these are winning trades 78% of the time over the last 6 months. Regular 3am Grid trades have very little drawdown before reversing. So it makes sense on those trades to put LIMIT-STOPS immediately upon the closing of the 3am candle.

So called Long Candle reverse trades on the other hand routinely drawdown 70, 80, 100 pips before reversing. To me that's way too much risk. Clearly, I'll need to develop a strategy to capture these.

I can't beat myself up too much. Monday's set-up was unique in the sense that it tripped and immediately reversed. Over the past few months, the drawdown would've tripped my stop every time. I did good.

Bottom Line

Analysis gives you the context to make better and more comfortable decisions. Gee, pretty obvious I guess.