The Daily Trade – Day 83

Filed under: Learn Forex Trading |

Trade Number 83 – GBP/USD 1-Hour Chart

I had a very nice trade on the GBP/USD forex currency pair the other day, which I would like to talk you through right now.

 

Figure 1.

A level of support/resistance had formed on the daily chart (see Figure 1). This level had been tested as both support and resistance (there had been a change of polarity on more than one occasion), and price had been approaching this significant level once again. This area was marked in on my chart with a green “zone” and I was watching this level for any price action setups on the daily, 4-hour, and 1-hour charts.

 

Figure 2.

Figure 2 now shows what had been happening on the 1-hour chart. As you can see, price had been steadily moving up towards this support/resistance area before a bearish engulfing pattern stopped it in its tracks. This was our signal to get in on a short trade, with a stop loss just a few pips above the high of the move. A risk-reward scenario of at least 1:2 should have been taken here, but as the stop was quite narrow, we could have gone for 1:3 or even 1:4. So if you have been risking 1% of your bank, then your target could have been up to 4%.

 

Figure 3.

Figure 3 now shows what would have happened had you taken this trade. Our stop loss would never have been seriously challenged and we would have reached our target quite comfortably, had it been 2%, 3%, or 4%. That’s all for today. I hope you are finding these trading examples useful. As always, I’ll be back tomorrow for the last trade example for this week. Until then, keep looking out for any price action setups at significant areas of support and resistance and post your comments.

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