Trade Example – AUD/USD

Filed under: Learn Forex Trading |

There was an interesting looking setup on the AUD/USD pair (the pair for the Australian dollar and the United States dollar) last night, but in the end, I decided not to take it. I would like to take you through this setup as an example right now, and outline my reasons for not taking the trade.

 

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 near the top of the chart is a support/resistance zone (marked with a horizontal green band) that price had recently been approaching. This level had been respected on a couple of occasions in the recent past, so it was a good level to be looking out for any price action signals.

 

Figure 2.

Figure 2.

Price has now formed a bearish engulfing pattern very close to this level, and it was here that I was thinking about taking a sell trade. However, a slight lower shadow on the bearish candle put a little doubt in my mind, and I then looked at the 4-hour chart (see Figure 2).

 

The four-hour chart shows that a bullish pin bar has formed at an intraday support/resistance level, so any sell trade would have to break through this level. Looking at this chart, it would perhaps have been better to take a trade on this four-hour chart, as a bearish engulfing pattern also emerged on this chart as well at our level of support/resistance. If we had put an order in at the close of this bearish candle to go short, either at the break of the low of the bearish candle, or at a 50% retracement of the bearish candle, then we would have made good profits. Unfortunately, I have only been looking for trades on the daily charts this week, as my record on 4-hour charts is not quite so good. More tomorrow…

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