Trade Example – AUD/USD

Filed under: Learn Forex Trading |

I’d like to take you through a nice little trade setup on the AUD/USD pair today – and this is another one that I have placed on Forex Tester during my test of the AUD/USD pair. If you look at Figure 1, you will see the trade in question.

Figure 1.

Figure 1.

 

Figure 1 is the daily chart for the AUD/USD pair, and this is in September 2011. What you can see is that there is a nice level of support/resistance in the middle of the chart (marked with a horizontal red line), and price had broken through this level, and then retracement back towards it. Interestingly, price was unable to close above this level, and then what followed was a bearish engulfing pattern. This is a clear rejection of this level.

 

What you could have done here is to 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 the move, or, you could have waited for added confirmation like I did. What followed was a pin bar, after which I put an order in to go short at a 50% retracement of the pin bar, with a stop loss just a few pips above the pin bar*. The bearish trend then resumed for a couple of sessions that saw some strong bearish activity. When a bullish candle formed, I then moved my stop to just above the high of the bullish candle, and this was hit in the next session with some more bullish movement, for around a reward of that double the original risk.

 

 

*The best play here would probably have been a 50% retracement of the bearish engulfing candle, which also would have been rewarded with two times the risk. However, I did enter this a little later than I would normally want (due to going a little too quickly on Forex Tester and missing the opportunity!), and as such, I entered on the pin bar.

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