The Daily Trade – Day 14

Filed under: Learn Forex Trading |

Trade Number 14 – EUR/GBP Daily Chart

I’d like to today draw your attention to the EUR/GBP daily chart and a trade that could have been taken at the end of May 2011. A nice inside bar formed at a significant area of support. The area had been touched and rejected a couple of times at the beginning of March 2011 and had since retraced to the same area. As you can see, a longer inside bar formed at this level, followed by another shorter inside bar, showing that price was getting squeezed (see Figure 1.).

 

Figure 1.

The main problem with this trade was that we would have to have at least a reward of two times our risk to make it worth our while. However, with an area of support just over our heads, this might have been enough to put us off this trading opportunity. However the long term trend is with us so we may well have been tempted to go long and go to breakeven once we reached one times our risk.

 

Figure 2.

As you can see from Figure 2, if we had taken this trade, we would have been handsomely rewarded. The pair burst upward with a lot of bullish momentum and would have reached at least three times our risk, with ease, before forming a bearish engulfing pattern at another area of key support. I am just including this example for illustrative purposes as I did not actually take this trade due to the strong support areas overhead. However, it serves as a good example of price action strategies, and the significance of support/resistance zones on a daily chart. I hope you have all enjoyed this trading example, and I will be back with more tomorrow. Until, then – happy trading!

 

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