Trade Example – AUD/USD

Filed under: Learn Forex Trading |

I have a very nice trade example for you today on the AUD/USD forex currency pair, which for those of you that don’t know is the pair for the Australian dollar and the United States dollar. This is a classic price action setup, and one that would have come off very nicely had you spotted it.

 

Figure 1.

Figure 1.

If you take a look at Figure 1, you will see the daily chart for the AUD/USD pair, which is the only timeframe that we will need to use for this setup. What you can see is that the pair has been in a very powerful downtrend, with the 8-day exponential moving average crossed nicely below the 21-day exponential moving average, and the chart very visibly moving down from left to right. In this kind of bearish trend, we are better looking out for any bearish price action signals to confirm the continuation of this trend, as taking any long trades would be going against considerable momentum (and swimming against the tide is always a tougher route to take).

 

I have drawn in an important level of support/resistance on this chart (marked with a horizontal red line), and you will notice that price broke through this level, and then retraced back up to it before forming a bearish pin bar (highlighted in green). This would have been a good place to 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 high of the pin bar, and target at the low of the previous move (for a risk-reward of around 1:2.5). As you can see, this order would have been filled, and the target met for a 2.5% rise on the bank. More tomorrow…

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