Losing with Discipline: ES Trade Breakdown & Lessons Learned

Video Transcript:

Hello everyone, it’s Dale here. Welcome to the new video from the Recent Trades series. In this video, I’d like to talk about a trade on the ES. I took that trade yesterday, and even though it wasn’t a winner—it was a losing trade—I think it carries a very important lesson, which I would like to show you in this video. So if you watch the whole video, you’ll learn the lesson and can apply it in your own trading.

What I’m going to do is go over the whole trade—meaning we will cover the reason behind the trade entry, the confirmation on the order flow, the stop-loss and take-profit placement, and the trade management and how the trade went. Alright, so let’s get to it. Let’s check out the chart.

What you see before you is the ES chart. It is a 30-minute time frame, and first, I’d like to talk about the reasoning behind the trade. The trade was based on a quite old level, but I don’t mind trading old levels. Markets have good memory. This level—this line—was a short level. That was the level I was trading yesterday, and it was based on a setup that formed two weeks ago. Let me zoom in on the chart a bit so you can see the setup better.

It was based on an opening gap from Monday. There was this opening gap, right? So basically, there were two things the trade was based on: first, the opening gap, and then heavy volumes behind the opening gap. The markets very often react to those levels—they close the gap and then react to the heavy volumes behind the gap, like this. So this was the idea: the price closes the gap, and I go short from the beginning of that heavy volume zone and also from the place where the gap opened. Right?

So the idea was to go short from this setup. By the way, I’ve been trading this setup more and more since Trump became president, and he often gives us some news during the weekend, and then there’s an opening gap. So you can trade this more often now. Anyway, this was the setup the level was based on, and two weeks later, the level finally got hit. Let me zoom in a bit. This is where the level got hit.

Now, before we go into how the trade went, I want to discuss the stop-loss and take-profit placement. Regarding the stop-loss placement, we need to go back and take a look at the level and how it formed. So this is the level again—this is the short level, this is the heavy volume zone—and the main rule for placing a stop-loss is: you want to place the stop-loss behind a barrier. In this case, the barrier is the heavy volume zone, right? So I placed the stop here. This was the stop-loss. Let me draw a straight line—this was the stop-loss. The reason is, it was behind this heavy volume zone and at the top of this swing point. That’s why the stop was there. The heavy volume zone represented a barrier. This was the barrier, and the price simply shouldn’t go past it. If the price goes past that barrier, then you close the trade.

That was the stop-loss. Now, regarding the take-profit placement, we need to go and check out the chart from yesterday. Let me delete this and let’s focus just on this area. You want to look into the area where the price was approaching your short level. So this being the short level, you want to look into the area where the price was approaching it, and you want to use volume profile to look at important heavy volume zones, because heavy volume zones work as support and resistance zones.

The chart shows this massive heavy volume zone beginning right here, and this was a barrier standing in the way of that short. So this was the take-profit. The idea was to go short from here and quit the trade at the first barrier—and that was this heavy volume zone. The stop-loss was this line. As you can see, this was more or less a risk-reward ratio 1 trade—slightly positive, but just a tiny bit above risk-reward ratio 1. That was the plan.

Let me now show you what happened when the price was going towards that level—when the price was reaching this level—because there was a beautiful confirmation on the order flow. Let me switch to the order flow chart. On this order flow layout, what I want to focus on is this chart. This shows cumulative delta, so let me go full screen with that.

What you have before you are two charts: this one is a 1-minute chart of the ES, and below that, this is the cumulative delta chart. This line is the short level. What you can see here is the price is approaching that short level. If you look at the cumulative delta—which basically shows you the difference between buyers and sellers—you can see that the cumulative delta is dropping. That means that even though the price is going upwards, sellers are selling. Sellers are actually dominating the market, even though the price is going higher and higher. So this is a divergence between price and delta, because price goes up, delta goes down—and price likes to follow delta. This is actually a beautiful confirmation of the trade. A beautiful confirmation. This is telling you that when the price hits the level, you should go short, because the price is likely to follow the delta. And as you can see, exactly this thing happened—the price hit the level and went downwards.

Let me go back to the price action chart. We had our order flow confirmation on the cumulative delta right here. I went short, and at first, this looked like a beautiful trade. We had a very strong level, we had a beautiful confirmation on the cumulative delta, so this looked like it must be a winner. As the price was going lower and lower, I secured my stop-loss right here at the top of this reaction. So I wasn’t really risking too much, and I just hoped that the price would reach the take-profit, which, as you can see, it didn’t—because what happened was unexpected news from Donald Trump.

Let me show you—it was this news. Trump was tweeting something on Twitter, and that caused the ES to change direction and go against my trade. So yeah, this is what happened. This is where the news came out, and boom—went straight into my stop-loss. And that was it.

Was I happy about it? Sure I wasn’t. But this is trading, and we need to be okay with things like that. The lesson I wanted to show you today and demonstrate with this trade is that no matter how much you trust in your trade, things can always go wrong, and you should always be able to admit defeat and act accordingly. You should always stick to your rules—money management, risk management—and if the trade simply doesn’t go as planned, then admit defeat and quit the trade. You need to be okay with that because we are traders. We manage risk, and sometimes we need to admit defeat.

I hope you guys liked the video. If you would like to trade with me and other proper traders every day in a live trading room, then I recommend visiting my website—it’s at trader-dale.com. If you click the button that says “FTA” it will take you to the Funded Trader Academy page. There, you can book a one-on-one call with us, and we’ll walk you through the service. Then you can decide whether or not this is right for you.

And if you guys prefer self-study packs more than a day-to-day meeting in a live trading room, then click the “Trading Course and Tools” button. This one will take you to the page where you can browse my trading courses and custom-made indicators. There’s the Volume Profile Pack, the Order Flow Pack, and the VWAP Pack. If you scroll down a bit, you can get all three together in one discounted bundle.

Alright, so that’s about that. Thanks for watching, and I’ll see you next time. Until then, happy trading.