DislikedFor price action traders: ... I saw an inverted hammer (marked with red arrow) and the price dragged back down the 4H resistance. I thought its a good entry for a short trade.... I closed the current trade at a loss and opened a long trade (marked with green arrow) with a target just below the next 4H resistance.... I couldn't figure out why the price went up after forming a bearish pin bar at the resistance.....Ignored
I am a big believer in "What you want to see; where you want to see it". Your initial trade meets these two criteria, but let's take a closer look.
What you want to see.
The "inverted hammer" you identified is very unreliable. There are far more reliable "inverted hammer" patterns. Most involve intervals preceding the "inverted hammer line", and or the intervals after it. Typically, the more reliable patterns require that the "inverted hammer line" have a high that is higher than the previous interval. One of the more reliable patterns looks like this:
Where you want to see it.
You mentioned taking the trade at resistance, so you have the "where" in place. From my perspective, however, the where is flawed. I believe Supply/Demand Zones, specifically Supply/Demand Delta Zones are the superior "Where". When I look at the EUR/USD 240 min. chart, I see that your "inverted hammer" appears in a Supply/Demand Delta Zone. Because price is in area where there was previously a key change in the Supply/Demand Dynamic in favor of Demand, I would only be looking to get long.
With all that being said, I like the fact that you saw what you wanted to see, where you wanted to see it, and took the trade. You then were quick to recognize you were wrong, exited you position, and even took a position in the opposite direction. If in doing all that you were following your trading plan, then you did everything right.
The fact that you were willing to admit you were wrong is big. There is a popular thread that states "Down Draw is a part of trading". Yes, Down Draw is a part of trading. But you have to be able to admit you're wrong and cut the losses short. Not keep adding to them until the market eventually turns in your favor. The market can stay "wrong" longer than you can stay solvent.
Wyckoff VSA: (1) Supply & Demand (2) Effort vs. Result (3) Cause & Effect
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