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Trading Error Analysis

· 6 min read
Femi Adigun
Femi Adigun
Senior Software Engineer & Coach

THE CRITICAL MISTAKE YOU MADE:

You looked at one red candle in isolation instead of the overall structure and context.

WHAT YOU SHOULD HAVE CHECKED FIRST:​

1. TREND STRUCTURE (Most Important)​

Before entering any trade, ask:

  • Where is price relative to recent highs/lows?
  • Are we making higher highs and higher lows (bullish)?
  • Or lower highs and lower lows (bearish)?

In your case:

  • Price was making higher lows: 663.20 → 664.00 → 664.60
  • Price was making higher highs: 664.80 → 665.20 → 665.40
  • This is BULLISH structure - not bearish

One red candle doesn't change the trend. You needed to see a series of lower highs forming to confirm bearish reversal.

2. SUPPORT/RESISTANCE LEVELS​

Where was price when you entered?

  • If it was sitting ON strong support (665.00-665.20), that red candle was likely just a pullback, not a reversal
  • Red candles at support often bounce - that's where buyers step in

Key question before shorting:

  • Has price broken below any major support level?
  • Or is it just touching support and rejecting?

In your case, price was holding above 665.00 support - shorting there was fighting the level.

3. MOVING AVERAGES POSITION​

Look at where price is relative to the green MAs:

  • Price above multiple green MAs = bullish bias
  • Price below multiple red MAs = bearish bias

When you entered:

  • Price was clearly above the green moving averages
  • Green MAs were sloping upward
  • This tells you: trend is up, buyers in control

Don't short when price is above rising MAs unless you see clear breakdown.

4. VOLUME CONTEXT​

One red candle means nothing without volume context:

  • Was it on high volume (real selling) or low volume (pause)?
  • Were the prior green candles on higher volume than your red candle?

If the rally had strong volume and your red candle was light volume, it's just a breath - not a reversal.

5. PATTERN RECOGNITION​

What pattern was forming?

  • Was it a bull flag (consolidation in uptrend)?
  • Was it a head and shoulders top (reversal)?
  • Was it just a pullback in uptrend?

In your case, it looked like a bull flag or consolidation - not a reversal pattern. Red candles in consolidation are normal and often lead to continuation UP.

THE TRAP PREVENTION CHECKLIST:​

Before entering ANY trade, check these in order:

1. What is the TREND? (30 seconds)​

  • Higher highs + higher lows = Uptrend (favor CALLS, be careful with PUTS)
  • Lower highs + lower lows = Downtrend (favor PUTS, be careful with CALLS)
  • Sideways = Range (trade the bounces)

2. Where is price relative to KEY LEVELS? (30 seconds)​

  • At resistance? Could reverse down
  • At support? Could bounce up
  • In the middle of nowhere? Wait for a level

3. Where is price relative to MOVING AVERAGES? (10 seconds)​

  • Above rising MAs = bullish bias
  • Below falling MAs = bearish bias

4. What is the VOLUME telling me? (20 seconds)​

  • Strong volume on up moves = buyers strong
  • Strong volume on down moves = sellers strong
  • Light volume moves = not meaningful

5. What is the TIME OF DAY? (5 seconds)​

  • 9:30-10:30 AM: Volatile, traps common
  • 10:30-11:30 AM: Trend becomes clearer
  • 11:30-2:00 PM: Chop/lunch doldrums
  • 2:00-4:00 PM: Afternoon trend

6. What is the RISK/REWARD? (10 seconds)​

  • Where's my stop?
  • Where's my target?
  • Is it at least 2:1 reward:risk?

Total time: ~2 minutes to check everything

WHAT YOU ACTUALLY DID:​

You saw: "Red candle = exhaustion = time for PUTS"

This is emotional/reactive trading, not systematic trading.

You skipped:

  • Trend check (bullish)
  • Level check (at support)
  • MA check (above MAs)
  • Volume check (likely light on that red candle)
  • Pattern check (bull flag, not reversal)

Result: You entered a PUT into a bullish trend at support with price above MAs. That's a low-probability trade.

THE ONE RED CANDLE TRAP:​

This is one of the most common traps for newer traders:

"I see a red candle after green ones, so it must be reversing!"

Reality:

  • One red candle is often just a pause or pullback
  • In an uptrend, pullbacks are buying opportunities, not short opportunities
  • You need multiple red candles making lower highs to confirm reversal

In an uptrend:

  • Red candles at support = buy signal
  • Red candles at resistance = maybe watch for reversal

In a downtrend:

  • Green candles at resistance = short signal
  • Green candles at support = maybe watch for reversal

THE GOLDEN RULE:​

"Trade WITH the trend, not against it, unless you have STRONG evidence of reversal"

Strong evidence means:

  • Breaking major support/resistance
  • Multiple candles confirming
  • Volume supporting the move
  • Pattern completion (head & shoulders, double top, etc.)

One red candle is NOT strong evidence.

HOW TO FIX YOUR PROCESS:​

Before EVERY trade, write down:​

  1. Trend: Up/Down/Sideways
  2. Key Level: What level is price at?
  3. Position: Above or below MAs?
  4. Signal: What pattern/setup am I seeing?
  5. Entry: Specific price
  6. Stop: Specific price
  7. Target: Specific price
  8. R:R Ratio: Calculate it

If you can't answer all of these in 2 minutes, DON'T TAKE THE TRADE.

SPECIFIC TO YOUR SITUATION:​

When you saw that red candle, you should have asked:

"Is the TREND still up?"

  • Yes → Don't short unless at major resistance

"Are we at a KEY LEVEL?"

  • Yes, at 665.00 support → Support means buyers likely step in

"Is price still above MAs?"

  • Yes → Still bullish structure

"Is this ONE red candle enough evidence?"

  • No → Need multiple candles to confirm reversal

"What's my R:R if I short here?"

  • Stop would need to be above 665.40 (recent high)
  • Target would be... where? 664.50?
  • That's 0.60 reward vs 0.40 risk = 1.5:1 at best
  • Not compelling given you're fighting the trend

CONCLUSION: Don't take the trade.

THE HARSH TRUTH:​

Trading based on "I see a red candle" is gambling, not trading.

You need a system that considers:

  • Trend
  • Levels
  • Structure
  • Volume
  • Risk/reward

One candle tells you almost nothing without context.

ACTION PLAN MOVING FORWARD:​

  1. Print out the checklist above
  2. Before EVERY trade, go through it
  3. If trend is UP, be very suspicious of PUT entries (only at major resistance)
  4. If trend is DOWN, be very suspicious of CALL entries (only at major support)
  5. Wait for the pullback in the direction of the trend instead of fighting it
  6. One candle is never enough - look for patterns and confirmation

The market will always be there. Missing a trade is better than taking a bad one. Your job is to wait for HIGH PROBABILITY setups that check all the boxes, not react to every red or green candle.