Trade Example – EUR/USD

Filed under: Learn Forex Trading |

There is not much setting up this week on our forex charts I’m afraid, and this is largely due to some massive gaps in the market. Therefore, we are going to have to wait for many of these markets to settle down and probably fill those gaps before we make any more trading decisions.

 

The only real trade setup that makes any logical sense at the moment is one on the EUR/USD forex currency pair (the pair for the euro and the US dollar). I am not taking this one personally, as I feel that the stop would be a little too tight and thus, it is a little too risky given that I have already experienced a -5% drawdown in February. However, I will talk you through the setup regardless and you can make up your own mind.

 

Figure 1.

Figure 1.

Take a look at Figure 1, which is the daily chart for the EUR/USD pair. This is the only chart that we will need to look at for this particular setup, as all of the information that we need is contained within this chart. What you can see is that price has been moving down, and the 8-day exponential moving average has recently crossed below the 21-day exponential moving average, signalling that the pair is bearish. Price has also just formed a bearish pin bar, which is coming off of a significant area of support/resistance (marked with a horizontal green band). However, a risk-reward scenario on this would be tight, as there is another area of support/resistance coming into play just below the low of the pin bar. Therefore, what we could do, is to go short at a 66% retracement of the pin bar, with a stop loss just above the high of the pin bar, and a target of two times the risk (which would be around the low of the pin bar). If you had put this order in, it would now be filled; and we will see how this one would have turned out.

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