Trade Example – AUD/USD

Filed under: Learn Forex Trading |

I have a trade example for you today on the AUD/USD pair, and it is one that I unfortunately missed. This is an inside bar setup, and one that would have resulted in us still being in the trade with some good profits had we taken it.

 

Figure 1.

Figure 1.

If you take a look at Figure 1, you will see the trade setup in question. This is the daily chart for the AUD/USD pair. The inside bar setup is that highlighted in green, where there is one candle that is completely enclosed by the previous one (which we call the ‘mother-candle’). It is also interesting to note that this inside bar came at a previous area of support/resistance (marked with a horizontal red line). What we could have done here is to put an order in to go short just a few pips below the low of the mother-candle, with a stop loss just a few pips above the high of the same candle.

 

Had we put this order in, it would have been filled, and price has since crashed lower. Even if we had moved the stop to a few pips above the high of each previous candle, we would still be in this trade and currently in profits of over three times the risk. Inside bar setups are useful both at areas of support/resistance, and in trends, and these are something that I use in my trading arsenal to find an entry in the markets. An inside bar is indicative of a minor consolidation period, a period when the market is taking a break – so to speak, and there is inevitably either a continuation or a reversal of a trend, or the breaking or a respecting of a support/resistance zone. An inside bar and the break of the high or low of the mother-candle can simply tip you off as to which direction price is going to go in next (but beware – as false breaks do sometimes happen!).

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