Under what conditions might it make sense to cancel a trade that was based on a UFO?
Often I make a trade based on a UFO zone, but then it looks like the price is not going to retrace down into it. When does it make sense to wait, vs give up on the trade happening? Do we cancel if we see a higher/lower UFO get created?
Hope that makes sense.
So there are a few reasons why you might cancel a trade when following the UFO methodology:
- as you rightly said, when price doesn’t look like it will retrace, it’s gone too far from your entry. This makes the trade more likely to be invalid because of one or more of the following reasons:
- The EMA no longer lines up with the chosen UFO
- Price is so far from entry that for it to retrace would likely result in a change of climate
- Sustainability stats on the Climate have surpassed a desirable level (e.g. 2x more than normal, or less if you’re stricter)
- A new rival UFO has developed on the higher timeframe that requires either a change in your T2 or cancellation if the trade if the UFO is less than 1:1 away from your entry UFO.
If a new UFO forms that aligns with the climate, sustainability and the EMA then it would a good idea to cancel the initial trade in favour of the new one that lines up better.
Hope that answers your question 🙂