The Daily Trade – Day 36

Filed under: Learn Forex Trading |

Trade Number 36 – AUD/USD 1-Hour Chart

Well, we are certainly bearish on the weather today. Let’s hope we have better luck on our charts! Today, I have a trading example on the AUD/USD forex pair. The setup formed last Thursday but let’s begin by taking a look at the daily chart (see Figure 1.).

 

Figure 1.

I had a nice support/resistance zone drawn in on the daily chart, which I have marked with a thin red line and a broader green “zone”. The one in question is the one at the top of the chart where price is approaching. You will see that price bounced off this zone several times in the past three or four months, so it has proved to be a very significant area. This is the area where we should be looking for price action setups on the daily, 4 hour, and 1 hour charts. I don’t look at charts lower than these timeframes because the setups tend to be less reliable.

If we now zoom in to the 1 hour chart (see Figure 2.), you will see that a nice bearish engulfing pattern formed at this zone, with a very long, bearish candle signaling a change in market sentiment. At this stage, we should have been taking a sell short, with a stop loss a few pips just above the high of the move. Our target should be at least two times our risk, and in this case, I would not aim for more than that as the stop loss is quite wide.

 

And if you now look at Figure 3, you will see that the trade would have come off very nicely to the downside, with us reaching our target in well under 24 hours for a 2% rise on our bank. I think that this concludes a very neat, trading example. Well, that’s it for today, so see you all tomorrow – and let’s hope the weather improves!

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