The Daily Trade – Day 12

Filed under: Learn Forex Trading |

Trade Number 12 – AUD/USD Daily Chart

I’d like to today provide an example of a price action trade on the AUD/USD daily chart, which occurred recently in June 2011.

Figure 1.

As you can see from Figure 1, there was a support zone formed near the end of May when there was a long pin bar through that level which was rejected. There were also a couple of other long tails coming off the same level a couple of candles before that. I had this zone marked on the chart, and it was again rejected in the middle of June with yet another long pin bar. There was a further move down deep into our “zone” and a pin bar was followed by a nice bullish engulfing pattern at the end of June.

We could have entered this trade on the close of the bullish engulfing pattern. The only downside to this trade was that if we’d set our stop loss at the low of the move just below the pin bar, then we could have only got a reward of about one and a half times our risk, based on the fact that our target should have been at the top end of the trading range in the next “zone”. However, we could have fixed this by putting our stop loss at the low of the bullish engulfing candle, which is not ideal, but it would have allowed us to get a risk reward of 1:2.

Figure 2.

As you can see from Figure 2, the trade would have paid off nicely as price rose perfectly to the next resistance zone, before bouncing off and moving back down. Again, this just goes to show how often these support/resistance zones are respected in the forex markets. So, if we keep trading off them by using price action signals, we should come out on top in the long run.

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