Moving ahead in time, I have identified the candle that broke out below the range of the candle incompassing the inside day candle and have identified this candle as the "Inside Day Breakout Candle." The inside day breakout candle indicates the price is ready to move lower. With price now ready to start moving lower, this is the perfect time to enter a "Short" trade.
The perfect time to enter a short trade is at the close of the breakout candle or the open of the next candle. I have identified this entry price level on the chart with a dashed black line as the "Entry."
To place a stop loss, I want to put it at a price level where price action should not go if the trend is genuinely starting to move downward. A downward trend is identified as a series of candles, making lower highs and lower lows. So, if a downward trend is starting, then I should expect all future candles to make lower highs. Therefore, if I place my stop loss above the high of the previous candle, then my trade should not get stopped out as the next candle would then be expected to make a lower high then the price level of my stop loss. If, for some reason, future candles make a higher high and my stop loss gets taken out, and my position is closed for a small loss it would tell be the market is not yet in a downward trend and I don't want to be in a "short" position anyway.
So, now that I am in a short trade, the next step is to identify the price level to take a profit.
The perfect time to enter a short trade is at the close of the breakout candle or the open of the next candle. I have identified this entry price level on the chart with a dashed black line as the "Entry."
To place a stop loss, I want to put it at a price level where price action should not go if the trend is genuinely starting to move downward. A downward trend is identified as a series of candles, making lower highs and lower lows. So, if a downward trend is starting, then I should expect all future candles to make lower highs. Therefore, if I place my stop loss above the high of the previous candle, then my trade should not get stopped out as the next candle would then be expected to make a lower high then the price level of my stop loss. If, for some reason, future candles make a higher high and my stop loss gets taken out, and my position is closed for a small loss it would tell be the market is not yet in a downward trend and I don't want to be in a "short" position anyway.
So, now that I am in a short trade, the next step is to identify the price level to take a profit.
