Trade Example – NZD/USD

Filed under: Learn Forex Trading |

 

Figure 1.

Figure 1.

There was quite a nice forex price action setup on the NZD/USD currency pair recently (the pair for the New Zealand dollar and the United States dollar) that I would like to discuss with you, and if you take a look at Figure 1, you will see the setup in question.

 

Figure 1 shows the daily timeframe chart for the NZD/USD pair. At the top of the chart, you will see a horizontal red line, which I have drawn to mark in a significant area of support/resistance that price has reacted to in the past. So, when price approached this level once again, you could have been on the lookout for any price action signals reacting to this level.

 

What you can see is that this level was reached with a large bullish candle with plenty of momentum. However, instead of this momentum continuing, a small doji-like candle formed, showing some consolidation and letting the market take a breather. However, what followed this was a bearish engulfing pattern, and this signalled that the level of support/resistance was holding firm once again, and that the bears had grappled control from the bulls.

 

What you could have done here was to put an order in to go short at the low of this bearish candle, with a stop loss placed just a few pips above the high of the move, and with a target set of two times the risk (at a minimum). If you had done this, the order would have now been filled, and you would be in profits to an amount around equal to your risk. For some extra insurance, you could also move your stop loss down to just a few pips above the high of the previous candle. This allows you to stay in the trade, but also allows you to exit if a bullish move occurs.

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