Trade Example – AUD/USD

Filed under: Learn Forex Trading |

I am currently keeping a close eye on the AUD/USD forex currency pair (the pair for the Australian dollar and the United States dollar) as it is approaching a very significant area of support/resistance. Let’s take a look at what price has been doing as it is approaching this level, and make a few assumptions and predictions.

 

Figure 1.

Figure 1.

To begin with, take a look at Figure 1. This is the daily chart for the AUD/USD pair. What you can see here is that price has recently been moving down, with the 8-day exponential moving average crossed below the 21-day exponential moving average, and the chart visibly moving down. However, there has been a slight pullback, and price is now approaching a previous level of support/resistance in the market (marked with a horizontal green band). Price has already respected this level on one retracement up, and it is now going back for more.

 

Figure 2.

Figure 2.

If you now look at Figure 2, you will see the 4-hour chart for the same AUD/USD pair. What you can see is that price formed a nice 4-hour pin bar right at our level of support/resistance. Price moved down a little after this, but has since moved back up for another attempt at breaking the support/resistance zone. This seems to be failing once again, and if the next candle closes with a bearish engulfing pattern, I would see this as confirmation and as being a very bearish signal. We will watch this one closely and see how it progresses in the next few hours. If a bearish engulfing pattern is formed, I may well put an order in to go short at a 50% retracement of the bearish candle, with a stop loss just a few pips above the high of pin bar, and a target of at least three times the risk.

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