Trade Example – XAU/USD (Gold)

Filed under: Learn Forex Trading |

There were no trade alerts yesterday, but there was one setup that I seriously considered taking (and now of course wish I had!). So I would like to take you through that setup right now to provide a forex-trading example.

 

Figure 1.

To begin with, look at Figure 1 and you will see the daily chart for the XAU/USD pair, which is the pair for gold. The long-term trend for gold is very bullish, but over the past few months, it has been unusually bearish. However, in the past couple of weeks, the market has been moving up very nicely, with plenty of bullish daily candlesticks. If you look at this chart, you will see that there is a very well defined pin bar in the middle of the chart that sticks out like a sore thumb. I have marked this in as a minor area of support/resistance.

 

Figure 2.

If you now look at Figure 2, which is the 1-hour chart for the XAU/USD pair, you will see a pale blue band, which I have put in to mark the area of support/resistance that we just mentioned on the daily chart. As you can see, price already reacted to this level before breaking through it, and then price retraced by 50% (see the Fibonacci tool on the chart) and formed a candle with a long tail, followed by a very long and well-defined pin bar. This was a good signal with some confluence. It happened right at our area of support/resistance, with the recent trend, with a 50% retracement and a price action signal. Looking back it is a trade that I really should have taken and I guess it is a question of confidence sometimes when you are on the back of a bad run of results.

 

Figure 3.

Figure three shows that a risk-reward of 1:2 or even 1:3 would have been successful. That is one that got away from us, but hopefully, there will be more opportunities like this one today.

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