Last week we looked at the EURAUD daily chart where a bearish rejection candle formed off a resistance level. The bearish rejection candle did have a strong anatomy, featuring a large bearish body. It also aligned itself with the overall weakness in the market.
Last week the market broke through the resistance level – taking out the bearish rejection candle highs. This is the data point we use to determine if the rejection candle trades are a failure.
In the War Room, we’ve been talking about the idea of trading failed setups like this. In this case a ‘failed trade’ position here (long) would be working out nicely, and we’ve been seeing this on a lot of failed setups. A breakout in the opposite direction is usually quite decent.
But for those who are on the sidelines – we’re waiting for the old resistance level to be tested as new support. It’s here we are standing by for a bullish price action signal to get us in with the developing bullish momentum.
Price Explodes out the Rear End
In the previous commentary, we highlighted a bearish rejection candle that didn’t work out – despite how good it actually looked. A reminder that even the best looking setups can fail.
In TheForexGuy forums and in the War Room, we’ve been seriously exploring the possibility of the failed trade breakout method. The methodology is simple – if you look back through your charts, you will probably find good setups that didn’t work out the way you anticipated, actually produced a massive breakout .
This EURAUD trade setup highlights this scenario beautifully. A good looking bearish rejection candle didn’t work out as intended, and blew out through the stop loss… and kept going.
A reverse trade setup here, where you flip the switch over to a bullish trade position would have recouped losses, and produced positive returns.
There was also an opportunity for traders to get long here with conventional price action trading which was covered in our War Room ‘Chart of the Day Commentary’ – a double bullish rejection candle combo formed on the first bearish retracement, after the failed trade breakout.
Looking forward to exploring the reverse trade method further with other War Room Traders.
If you have any trade setups, or strategies you would like to share, please stop by our Forex trading Forums and share your thoughts with our community. Look forward to seeing you there.