Futures Trade Analysis

This trade was the last trade I took during the U.S. session today. I do trade Asia and London quite often; especially Asia.

Look at the chart. Look closely! There are lessons to be had in it.

Why do I say that? Because, earlier today in the Facebook group that I posted this trade in, a gentleman mentioned that there was “zero value” to the pic. Well, that’s just wrong on numerous levels.

If you’re a new trader, I get it. You might not see what I saw very quickly when I pulled my chart up to make this trade. Don’t worry! The more you look at charts, the more you will train your brain to spot the obvious. You will learn to spot the clues, or, the “golden nuggets” as I call them, that smart money leaves all over a chart.

Here is the trade I took. Take a good hard look, and see if you can see the same clues I saw:

See anything?

Look back to around the time 13:40. Notice the 2 big green candles? Ok, now notice what happened right after that… the price dropped. It didn’t just drop a little bit, it dropped the entire distance of the 2 green candles, and then some. So, that entire move up was negated on the next move down.

The move upwards was a fake out.

On the next pic, notice the consolidation that the 1 minute chart was in. Then, notice the fake out to the upside (the 2 green candle move we are talking about). I call it a fake out, because, well, it was a fake out. Soon after it dropped. The consolidation was not ready to break.

Here’s what was happening: The market had been ripping all morning, then came up and started a consolidation pattern. If you’ve been following me a while, you will know that I have a theory about what consolidation is, and what happens just before a break out of the consolidation. It’s a bit much for this post, but don’t worry, I’ll make a dedicated post to my theory on consolidation patterns.

Anyway, the consolidation was a bullish consolidation. The market was ripping all morning, then paused. That’s all it was: a pause. Look at the rip up…

There was nothing at the top to suggest that the trend was about to reverse and move down. Nothing. In fact, even the fundamentals of the day (the news) suggested quite the opposite. But, because I don’t “assume” anything, I wait for clues. And the 2nd bottom of that consolidation was my clue that it was not a reversal, but a bull flag.

Moving on now…

So… The fake out (2 green candle move) happened, then dropped like a rock (relatively speaking), and the entire fake out was negated. Here, I’ll show you the chart once more:

The drop after the 2 green candle move, was what told me it was just a fake out. Because, it didn’t just retrace the 2 green candle move, it engulfed it. It was as if the original move up never happened.

Next, the drop retraced, then dropped again. But it didn’t just retrace to an arbitrary spot. Nope! It retraced back into the consolidations resistance, and was rejected. The rejection told me it was going to drop some more.

This is also where my strategy comes into play. But the strategy itself is just too much to explain in this post. Not only that, with this particular trade, you didn’t even need my strategy to make a few bucks.

Anyway, so to recap before moving on: Price ripped all morning, went into consolidation (a pause), faked up and out of the consolidation, dropped like a rock, then retraced and was rejected off of consolidation resistance.

So now, because of my theory on consolidation patterns, and after studying MANY MANY consolidation patterns via back testing, I am confident that I had a good idea what was coming next.

But first, I grabbed my handy dandy crystal ball and found a support that set underneath my entry, and would give me plenty of room to take my usual 3 points. The support I’m talking about is the grey zone. Take a look at the chart again:

And lookie lookie! Look what that support zone lined up with… the consolidation support line.

So I entered the trade. I had plenty of room to take my 3 points. I did push this trade a bit further than usual, because I went further into my zone than I normally do. Typically, I take profits at the tops of my support zones. But in this situation, I had a good idea it would hit my target line (black line on chart), because of what had transpired leading up to the trade.

Noticed what happened right after it hit my target line (black line)? It bounced off, and never looked back. Here is a pic of what happened next:

It went up for new all time highs.

But here’s why I thought that target line would be hit. It has to do with my overall theory on what happens in consolidation patterns. And again, I will make a post dedicated to that theory soon… for now, here’s what I figured would happen, based on lots and lots of consolidation pattern studying.

The first fake out was a sign that the consolidation pattern was about to break for good. But, one thing hadn’t happened yet: Smart money had not done a stop loss hunt yet.

In short summary, a stop loss hunt is a way for smart money to finish filling their positions before continuing on in the overall trend direction. This usually happens in consolidation, regardless if the consolidation is bullish or bearish.

Remember, smart money plays on all time frames. So even though this was a 1 minute chart, there is still smart money players in the game.

Anyway, I knew the consolidation was not quite complete because there hadn’t been a stop loss hunt yet. So because of the fake out to the upside, I knew the stop loss hunt was coming.

When I found my support zone, and then noticed that the target fell in an area that would be a good blast off zone after a stop loss hunt, I figured I could take profits a bit deeper into my zone. And I did. Also, my target fell right at consolidation support.

That’s my trade and the thought process that went into it.

Lol! You’re probably thinking, “WTF! You have to think of all that to make money?”

Ya, you do! I won’t lie. But the good news is this: Once you start to understand the markets, and once you start to really study charts and paper trade (simulated account), it eventually starts to happen very quickly. I don’t take minutes to recognize all those clues. I used to. Hell yes I used to! But now, all of this comes to me within seconds. I just glance at a chart and I can spot a ton of information quickly. With the right mind set, you will be able to do the same.

This game takes time to learn. It takes time, patience and, most of all, dedication! There is no “easy” way to become a profitable trader. Time, patience and dedication! Study study study! Lots and lots of screen time charting and back testing. Lots of reading and research… all of it!

It will happen if you want it to happen.

WARNING/DISCLAIMER: Investing and trading carry significant financial risks. I am not a licensed financial or investment adviser. Nothing on dumbmoneytrader.com should be considered financial or investment advice. Everything on dumbmoneytrader.com is for educational purposes only, and should NOT be considered advice. Consult a professional financial or investment adviser before making any financial decision. Never enter any investment or trade without consulting a professional and licensed financial or investment adviser. Never enter any investment or trade based on anything you read or see here on dumbmoneytrader.com.

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