Executing the Double Top Trade
With your understanding of all pieces of the puzzle and how they fit together, we will now take a look at the double top sell example from start to finish. All of the pieces of the puzzle now come together and help you execute this trade intelligently. Most of your skills will be needed before you even get into the trade so we will look at before, during, and after screenshots of the trade to better understand where everything goes.
Before You Enter the Trade
So let’s live through the double top trade. You have understood from the market structure what type of trade you are expecting, you have decided at what location that type of trade would make sense, and you now see an entry trigger at that location so you can take action. All of those details have been covered in these lessons and now we just need to look at the process of preparing for the trade. What do you know? What can you do with that information?
In the above screenshot, this trade has not yet triggered but you know what your entry price will be. You also know what your stop loss price will be and so, therefore, you know your risk. In this example, the risk on the trade if you were to take it is 125 pips. When it comes to the take profit the next 2 obstacles in the trades path are obvious. Due to the nature of this type of trade, you could expect the lower low but it would be safer not to. The momentum behind that trade is completely horizontal so no momentum lines have been placed. For the sake of this example, we will play it safe and shoot for a slightly higher low ignoring all the spikes that created obstacle 1. So now we know the reward on the trade which in this example is 200 pips. That gives you a risk:reward of just over 1:1½ which is very acceptable.
Placing a Safety Net
You now have a trade that is setting up at a good location with good structure behind it, you have an entry trigger that has presented itself, and the risk:reward makes the trade worth it. At the stage you see in the screenshot below your stop loss price has more than one use. Since you have not yet entered the trade then if price came up and passed your stop loss your trade would be canceled. After all, your chosen location would be broken at that point. If price heads down however and triggers your entry price then the stop loss will be as the name suggests. There is also a safety net that can be decided on at this juncture.
Obstacle 1 has been used as a take profit but there are several indecision candles that create its resistance box. It would be a shame to almost make it to your take profit then have the trade turn around and head to your stop loss, so this is a great place to move your stop loss to +1 pip or better. Here at WaveFX Trading, we call this a lock profit trigger and it has been marked in the above screenshot. This lock profit area is a great place for you to receive an email so that you can come to the chart and see ‘how’ price arrived at it. Based on how price has arrived you will be able to decide if you want to move your stop loss to +1 pip, move your stop loss to lock in more profit that just the +1, or even just take profit there.
After You Have Entered the Trade
Now that the trade has entered and price has travelled to your lock profit trigger, you can asses how price got there. In the case of this double top trade it was quite one-directional, but on the way down you can clearly make out a slight hesitation at those two red indecision candles. This ‘pullback and go’ style area is a great place to put your stop loss instead of just moving it to +1 pip. If price comes back to break that area, things may very well be shifting the wrong direction.
Keep in mind that you are already at +150 pips at this juncture, and you only risked 125 pips. If price had displayed a hard time getting there you would have the option to exit. With this trade though price made a nice relatively direct run as it approaches take profit. It has also just broken the lows of those two red indecision candles so there appears to be nothing to worry about. It should be clear sailing down to your chosen take profit.
Trade Complete – Wait for the Next
In this next screenshot price has made it to your take profit. A technically sound trade that was executed intelligently with maximum probability in your favor every step of the way. Even though this trade had a duration of 5 days, it could have been executed safely from start to finish with just a few minutes of your time using the WaveFX Trading Membership tools. These tools will execute, manage, and email you at the important decisive moments. These tools would have allowed you to plot out everything discussed in this lesson in minutes at the close of the daily candle (the decided entry trigger). In short, on your part, this trade would have taken you about 5 minutes of those 5 days.