Trade Example – EUR/USD

Filed under: Learn Forex Trading |

 

I have a trade example for you this morning on the EUR/USD forex currency pair, which for those of you that don’t know is the pair for the euro and the United States dollar.

 

Figure 1.

To begin with, I’d like for you to take a look at Figure 1. This is the daily chart for the EUR/USD forex currency pair. This will be the only chart that we will be looking at for this trade example, as all of the information that we require is contained within this chart.

 

To begin with, we always assess the trend. The 8-day exponential moving average has recently crossed below the 21-day exponential moving average, and the two moving averages are separating more and more. This means that the bearish momentum is currently very strong, so we should only really be looking out for any price action signals that confirm this bearish momentum.

 

I have drawn in a horizontal line on the chart (a thin red line), which marks a significant area of support/resistance. This had acted as a strong area of support in both March and April of this year, so when price finally broke through this area, I was looking out for any price action signals in the direction of the bearish trend.

 

A nice inside bar formation set up just after breaking through this significant zone. We could have put an order in here to go short at the break of the low of the mother candle of the inside bar, with a stop loss placed just a few pips above the high of the mother candle, and a target of two times our risk. As you can see, this bearish momentum has continued and this trade would have been successful for a nice 2% rise on our trading bank.

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