I’ve had about 12 requests for a quick rundown on the EURNZD that was part of our first free Forex setups for 2019.
Long time viewers will no doubt nod their head while I cover this as it is nothing different than what we’ve done here for years.
For new viewers, it will be a chance for you to dig into how these charts are handled.
First, let’s recap that we were looking for a short on the pair and wanted to see some basing which is simply sideways movement of price.
Basing at support has more odds of breaking then holding.
When we are looking at most trading plays, I have constantly advocated for the four hour chart to be used for daily setups. The reason is that I get to see if there is a balance of power shifting in the direction I want.
We can infer from the daily chart what has happened on the four hour of course but I also like to see if I can get an earlier entry in all my trades.
So what happened on the four hour chart?
- Price formed a double bottom in what is essentially a range.
- Buyers step in strong over the next 12 hours and breakout highs. The key is that the momentum came from the bottom of the range which gives the edge to upside failure.
- This is a failed test of highs. After buyers entered with momentum breaking highs, they could not hold the position and the resistance that was initially broken, was reclaimed
Shorting at the low of the red candlestick at 3 is the play. The stop loss location is clearly above the spike at the left corner of the red box.
Exiting The Trade
Some traders will exit at the same price point as number two or perhaps scale out profit. Others will take partial at 1R and let the other run with a trailing stop loss.
You can trail the stop after each stair step down is broken but there is something else to keep in mind – the measured move.
Heading back to the daily chart, we can see an A to B = C to D move in price. This is a rough guide and it is not always perfect in terms of the symmetry of the move.
You can use the formation of this pattern as a guide in determining whether to be more aggressive in adjusting your stop.
Remember that price essentially broke from a range and often times we see breakouts pullback to the origin of the break.
If we agree that our job is to be a risk manager first, then it makes sense to read the pattern in the moment and if it is hinting at reversing, take action.
Repeatable Events You Can Trade
The context we saw in the EURNZD is something that repeats in any market, not just Forex
If you could master one thing that repeats, you could make a good living trading any instrument you choose.
For those that come here looking for exciting chart patterns and secret indicators, you will be disappointed.
There isn’t any.
They are not needed.
When we all started trading, we heard about trading pullbacks, we heard about support and resistance trading, and for the most part, you should have stuck to that.
There is an actual edge in the simple patterns we discard for something complex.
This edge, is quantifiable.
It isn’t theory.
It just takes work so stick around.