Correct behavior after entering a trade

After entering a trading position, two scenarios may arise:

The price moves against us.
The price moves in our favor.

The first scenario may manifest in various forms, and we will explain a few examples of it: Suppose that after a suitable move and correction, a “weightless” candle forms, and then a “change of order flow” candle is observed. We place our buy order above this candle with a stop loss. Our order is activated with the next candle, but the price does not move in the direction we expected. In Figure 1, our order is activated with a weightless buy order, and subsequent candles also move weakly in the opposite direction. As long as these weightless candles, which can be 3-4 candles, close within 50% of the range between the entry point and the stop loss, we can expect this trading position to move in the direction of our analysis. Therefore, we try not to close it manually, unless the number of candles increases and we realize that the change of order flow candle we used to enter the trade has failed to attract the necessary liquidity for an effective move, and there is a possibility of a market direction reversal or consolidation. In such conditions, we try to exit the market at the best point, either at breakeven or with a minimal cost, by referring to a lower time frame

When manually closing a trading position, you should not rush until the candle after your entry has closed. If, as shown in Figure 2, the next candle breaks and closes beyond the 50% range, you can exit the trade before your stop loss is activated by the next candle. The reason for exiting is that when such a candle forms and also closes in its lower third, we expect the next candle to close similarly, thus triggering our stop loss. This strong, opposing candle on a lower time frame indicates a downward step, and after a correction, we expect the next downward movement to form. Therefore, it’s better to exit this trading position with a minimal cost before our stop loss is activated

If, as shown in Figure 3, a candle forms after our entry and closes near our stop loss, it is not worth closing the trade due to the minimal remaining cost. In such cases, we stick to our stop loss. However, if the price reverses before reaching the stop loss and the candle turns into a shadow, as shown in Figure 4, and a neutral candle forms with its closing price within the 50% range between the entry point and the stop loss, we can remain hopeful that this trading position will move in the direction of our analysis. Therefore, we wait

If, as shown in Figure 5, a shadowed candle forms after our entry, and if we sketch the schematic of these last three candles on a lower time frame, since there is a high probability of another downward extension move, and considering that we have incurred minimal cost so far, we are allowed to close our position before the stop loss is activated.

To summarize, after entering a new trade and setting a stop loss, if the price does not move in our favor, two scenarios might occur:

A. The price moves against us and enters a choppy phase, extending to three candles and reaching the entry range, slightly above or below our entry range. In this case, we close the trade with the closing of the third candle because, according to the entry edge logic, we enter a trade where there is a large accumulation of orders in favor of our trade. For example, if we enter a Long trade, after the entry edge candle, we expect Long trades to cover Short traders, resulting in a price spike. If this does not happen after our entry, either we made a mistake in choosing the entry edge, or for some reason, the sentiment has changed, and orders have been withdrawn. Therefore, when trend-building traders change their views and are no longer active in the market, there is no justification for our presence either. We should immediately close the trade and exit.

B. If the price moves against our expectation but has not yet breached the 50% range between the entry edge and the stop loss, we can hold the trade until the last candle closes in the lower third. If it closes in the lower third, there is a tendency for the next candle to close downward, triggering our stop loss and resulting in a loss. Alternatively, if the price extends beyond the 50% range between the entry edge and the stop loss, we close the trade and exit.

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