Trade Example – EUR/USD

Filed under: Learn Forex Trading |

There was a possible setup on the EUR/USD pair today, and I would like to talk you through this setup right now.

Figure 1.

Figure 1.

 

If you take a look at Figure 1, you will see the daily chart for the EUR/USD pair. What you can see here is that the 8-day exponential moving average is crossed above the 21-day exponential moving average, and the chart is visibly moving up from left to right – and it has been for some considerable time. I have marked in a very nice area of support/resistance on the chart (marked with a horizontal green band), which was the previous high, and it was at this area that I was on the lookout for any price action signals.

 

Price retraced back to our area of support/resistance, and it slightly broke through this area, closing below the support/resistance zone. At this stage, I was quite bearish on this pair. However, following this, a bullish engulfing pattern formed. What put me off about this bullish engulfing pattern was that it had a slight upper shadow. Had it closed a bit higher, I probably would have put an order in for a long trade here at a 50% retracement of the bullish candle, with a stop loss just a few pips below the low of the move, and with a target of at least two times the risk. Had we done this, we would now be sitting on a 2% rise on the bank, as the order would have been filled, and price has subsequently moved up. This kind of setup is sometimes called a ‘crack and snap’, because the support/resistance zone is cracked through, but then it snaps back up. This is a very bullish signal, and one that I perhaps should have taken.

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