Got my hands burnt trying to trade against NFP tonight. I traded what looked like the start of a range-bound period. The price action following NFP had become more bearish, and a lower swing high and a lower swing low had been established. Plus, downward momentum appeared stronger. I saw a high volume, low range candle at a S/R level and entered short using a limit order. My risk:reward was 1:2.25.
Looking back, a few things stood out:
- the high of the entry signal itself broke the previous swing high, which ruined my premise of a continuation of a bearish 'lower swing high, lower swing low' pattern. I didn't notice it until the trade was over.
- while downward momentum was strong, there was massive stopping volume at 0.93000. The volume of the candle was double of the previous 10 candles or so, so there was massive buying interest.
- the upward move following this stopping volume was stronger than the previous upmove.
- I was trading against the longer-term trend. This in itself isn't bad if you believe the market is entering a range-bound period, which I had expected. However, the NFP release would've introduced more volatility than usual.
- I didn't wait for the low of my entry signal to break, which would've provided more confirmation. Instead, I prematurely entered. Using a limit order after a break of the candle would've been better. As you can see, the low never got broken so I would've stayed out if I had followed this guideline.
Overall, a dumb trade. I was too quick and eager to pull the trigger.
(click to enlarge)