Risk-Reward is a factor, which every successful trader takes care of. Before choosing a chart to take an entry, the first thing that is to be considered is the trend, then the risk-reward factor. Once we have set our Take Profit and Stop Loss level, we shall leave the entry either to hit the Stop Loss or the Profit Target. However, today, we are going to demonstrate an example of an early exit.
This is an H4 chart. The chart shows that the price has found its support as well as a resistance zone. After having a final rejection, it makes a move towards the downside. Then, it heads towards the North now (see the next image). Another rejection and bearish reversal candle at the resistance zone may produce a short entry.
The last H4 candle is bullish. However, the candle closes within the resistance zone. It may go either way. The buyers may get an upside breakout; the sellers may get a bearish reversal. Let us proceed to find out what happens next.
In the above chart, we can see one good-looking bearish Marubozu candle. The candle suggests that the sellers may wait for consolidation and downside breakout to take a short entry. The candle forms at a Double Top resistance as well. The price may consolidate around the neckline level.
As expected, the price starts having correction around the neckline level. It needs to find its resistance and produce an H4 bearish reversal candle along with a breakout at the neckline.
Here it comes. The last candle engulfs all the candles by closing below the neckline. An entry may be triggered right after the candle closes. The price has enough space to travel down to the red-marked line, which allows an excellent risk-reward. However, there is a support level in between, that may hold the price for a while.
The price heads towards that level with good bearish momentum. The way it has been going, it may hit the red-marked level within four/five H4 candles. This means one more trading day may be required to hit the original Take-Profit level.
The in-between level is a vital level, which produces the H4 bullish reversal candle. The price has reacted several times at that level earlier. Usually, we must stick with our original Profit-taking target. However, it is also legit to close our entry right after the last candle closes. A question may be raised “why do we close our entry here?”
Reasons for Early Exit
There are two reasons
- The support level is significantly strong
- The current bar is the last H4 Friday’s candle, which means the market closes once the candle is finished.
The Bottom Line
When using the Weekly and the Daily charts, traders are to let their opened positions to reach the target during the weekend. However, intraday traders should consider closing their floating trade before the week’s end. Mondays often start with a big gap, which may hurt intraday Stop Losses.