For this trade on the 9/3/2012 I used IG Markets standard chart with out any bells and whistle.
The context of the trade was that the Aussie dollar has been falling for the last few days, a counter trend starting forming with a classic reversed Head & Shoulders pattern as seen in the chart. Now Head and Shoulders are easy to measure for the move if they breakout. So the target was approx 1.679 for a nice move up, however this is where the concept of context is Vital and a good understanding of what a counter trend is.
A counter trend is the rise in price which goes against the prevailing trend. Now the trend is well set in and quite obvious to the naked eye. A better way of looking at it is to imagine running up a steep hill knowing that you are going to run out puff soon. So the traders that trade these setups are scalpers looking for a very quick profit before price runs out of puff.
So looking at the chart the reversed Head & Shoulder and sideways build up of the last shoulder showed good promise of a breakout to the upside. Price did breakout and I waited for a retest of the breakout. Meaning I wanted to see a bounce or reversal of the original breakout level. This is a good sign of strength. This happened perfectly and I entered my trade at 1.06478 and watched it shoot up strongly to approx 1.06640 before starting to fail.
Now at this point I had to make a quick decision. This is where context plays a vital role, if the larger over trend was long (up) then I would have held on in the hope of the reversed Head &Shoulders reaching its measured move. However as I know its against the overall trend eg a counter trend, and I know that this is a scalpers trade setup, I better get out on any sign of weakness. The first red bar that closed on the 5min was my signal to exit. I sold for 12 points, time in the market 20mins.
I then went off to the Gym only to return to see that price action had reverted back to the overall trend of doing down.
Had I stay I assume that I may have captured 3/4 of the move down. Oh well maybe next time.......Till then.
