Trade Example – XAU/USD (update)

Filed under: Learn Forex Trading |

Yesterday, I talked a little about a trade example on the XAU/USD pair (the pair for gold). Since then, this pair has fallen away dramatically, and I would just like to talk you through this setup in a little more detail today, and discuss some of the possibilities that were present with this setup.

 

Figure 1.

Figure 1.

So, without further ado, take a look at Figure 1. This is the 4-hour chart for the XAU/USD pair. Just to recap on yesterday, the green band at the top of the chart represents a good area of support/resistance on the daily chart. This also happened to be a 50% Fibonacci retracement area as well, so there was good confluence at this area. The key thing here is that a nice pin bar confirms this level for us – and tips us off to the fact that a move down may be imminent.

 

As you can see, since then, this market has really fallen away, and gone right back down to the most recent low. Unfortunately, my order for this trade was not filled, as I like to enter on a 50% retracement in order to get a better risk-reward scenario. However, you could also have entered at the close of the pin bar, or at a break of the low of the pin bar. On this occasion, either entry would have allowed for a risk-reward setup of a profit of five or six times the risk. Sometimes, we have to be brave and let our winners run, and if you had been following this chart, at no point on this decline was there any signal that you should exit a short trade. Hopefully, another setup like this one will come along soon – as this was a very nice, confluent setup. Well, that’s it for this week, and I’ll be back on Monday with yet more forex price action trade examples.

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