Trade Example – AUD/USD

Filed under: Learn Forex Trading |

I have a trade example for you today on the AUD/USD forex currency pair, which is the pair for the Australian dollar and the United States dollar.

If we begin by taking a look at Figure 1, we can first assess the trend. The chart is moving down from left to right, signalling that the market is bearish. The 8-day EMA is also crossed well below the 21-day EMA, and it has been for some time. The market clearly has some good bearish momentum, and therefore we should only really be looking to hop onto this momentum and take short trades. However, before we can do that, we need some price action signals to confirm the continuation of this bear trend.

 

Figure 2.

Figure 2 shows the 4-hour chart for the same AUD/USD currency pair. What this chart shows is that price had consolidated a little and retraced up against the dominant trend. A small bearish engulfing pattern then formed, creating a good area of support. Price then started to move back down, before the level of support was tested once more with a bearish pin bar. This confirmed that the level of support was holding, so this would have been a good place to put an order in at a 50% retracement of the pin bar, with a stop loss placed just a few pips above the high of the move, and a target of three times our risk.

 

As you can see, this trade would have been successful for a very nice 3% rise on our bank. Trades like this do not come along every day, so we have to be patient and watch like a sniper waiting for his target. This is the essence of price action trading. Well, that’s it for this week, and I’ll be back next Monday with more. Until then, have a great weekend.

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