Timing is an essential factor in trading. Price action traders take entry on signal candle’s/bar’s attributes and support/resistance breakout. Many traders ignore the timing factor. However, it is an important factor when the signal candle is produced. In this article, we are going to demonstrate an example of the importance of timing in trading.
This is a daily chart. The price keeps going towards the South. Traders shall only look for selling opportunities in this chart on upward price correction/consolidation. Let us go to the next chart and find out what happens next.
The chart produces an engulfing bullish candle. It is a sign that the price may go towards the North. Intraday buyers such as 5M, 15M, H1 traders may look for long opportunities in this chart. The daily chart traders must wait for the correction/consolidation to get over upon a daily bearish reversal candle.
The price heads towards the North with good bullish momentum. The intraday buyers have made full use of the engulfing candle here. However, upper shadow and an Inside Bar suggest that a bearish reversal may come soon.
Here it is. A bearish engulfing candle suggests that it is time to look for short opportunities. It is a daily chart, so we shall flip over to the H4 chart to look for short opportunities.
The H4 chart shows that the price consolidates and makes a bearish move. However, support is still intact. The sellers must wait for a breakout at the support to go short on this chart. Let us draw the support line on the chart.
With an upward adjustment, the support lies at the black marked level. One of the H4 bearish candles is to breach the level for the sellers to get engaged in selling. Let us proceed to the next chart.
Concentrate on the chart. The chart has produced six candles since we have flipped over to the H4 chart. Six H4 candles mean a trading day is passed. Does it have any message to give us? We dig into the message later. Let us proceed to the next chart.
Wow! We have a breakout. Some traders may want to trigger an entry right after the candle closes. Let us find out what happens next.
The price starts heading towards the North. The price hits the Stop Loss. It even breaches the highest high of the wave. This is a different ball game now. If it were a technically right entry, we would not have talked about it. The thing is this one was a wrong entry, as the signal candle forms at the wrong time.
The signal candle does not form within the next trading day. It takes nine H4 candles to make the breakout. If the signal came within the first six candles, it would have been a valid trade. Since it comes at the ninth candle, it means the support has become daily support. Thus, an H4 breakout is not enough to drive the price towards the South. It goes towards the upside instead. The lesson we have learned here is, “A breakout is not a breakout if it does not take place at the right time.”