EURAUD Trade Setup Discussion

Hello Forex traders,

Last week we discussed the potential Australian Dollar weakness (against the USD in that article). The Aussie did indeed weaken but more against the British Pound and Euro. Will there be follow through this week? Let’s take a look!

Don’t forget to check out yesterday’s analysis on the USD and the info about bitcoin and its future via this link.

EURAUD

On the daily chart the EURAUD is obviously in a very strong uptrend (purple channel) and price has recently bounced off a confluence of a broken top (red-green line) and 50% Fibonacci retracement level (green Fib).

4- 3- 2014 ea d

When zooming in, traders can see a clutter of mostly bullish daily candles but the there is one strong directional candle which is worth the attention: Friday’s bullish daily candle. Today’s price action has retraced a good part of that candle. Looking at the bullish character of that candle, there is a decent probability that this candle low will not be broken.

4- 3- 2014 ea d 2

UP CLOSE

When going one time frame lower (to the 4 hour chart) a couple of things become immediately noticeable:

1)      The broken triangle (purple lines) to the upside

2)      The subsequent hook back to the broken triangle

3)      The bounce off of the top of the triangle with 4 hour bullish engulfing twins

This is certainly looking like a decent probability of becoming a bouncing spot for uptrend continuation.

4- 3- 2014 ea 4h

ENTRY DETAILS

The entry could have had different methods and levels. If you watched yesterday’s Double Trend Trap video summary, then maybe a direct entry at the Fib levels would have been your choice. In that case you are doing well.

Other options were/are:

a)      Upon close of the 4 hour bullish engulfing candle

b)      Upon break of the 4 hour candle high of the bullish engulfing candle

c)       Upon retracement of the 4 hour bullish engulfing candle

d)      Various entries at the Fib levels

In this scenario, waiting for the break of the 4 hour top is very similar to trading the break of a trend line (purple) on the 1 hour chart (see chart below).

4- 3- 2014 ea 1

TRADE DETAILS

STOP LOSS: when trading the Fibonacci retracement tool, the safest stop loss option is always the bottom of the swing high or swing low (red line). However, if a trader is using the Fibonacci as a trigger and the candle stick pattern as a confirmation, then a stop loss below the 4 hour low could also be used (dark red).

TAKE PROFIT: the target zone is quite wide because the daily top is quite a distance away. With such a seemingly wide open space in front of it, the EURAUD might even build on extended up moves and up trend.

Nothing is certain however, so a split of the trade where a part aims for a specific take profit level and the other part is left open with a trail stop loss could be the best solution. This method allows for profit to be cashed in but also leaves a trade on if the currency does break out higher than anticipated.

My personal favorite combination:

1)      Place take profit level for part of trade at -61.8% Fibonacci target

2)      Leave part open without take profit

3)      Use a trailing stop of 4 hour fractals for both trades

4)      Use a trailing stop of 1 hour fractals when price hits the -1.000 target.

4- 3- 2014 ea 4h2

What is your opinion on the EURAUD? Are you going to trade it? Let us know down below!

Thanks for sharing this article and Good Trading!

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Chris is the head of the mentoring program and trading room at Winner's Edge Trading. He has a passion for technical analysis and helping Forex traders achieve their goals in trading. Chris has been trading for almost 10 years and is most fond of the Double Trend Trap (as a strategy), moving averages (as an indicator) and Fibonacci (as a tool).
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  • http://jbmaverick.wordpress.com/ Jack Maverick

    See? I TOLD you to scribble an update on this – I sold that junk at 1.5333 this morning, closed out at 1.5254. :)

  • http://jbmaverick.wordpress.com/ Jack Maverick

    Excellent analysis, Chris. Very clear.
    You might want to scribble an update on this pair, as I think this week’s action may be signaling a possible trend change.
    Just a thought,

  • aristides

    Hello Chris,

    I enjoy your analysis very much and actually came to this site to thank you for it,
    My personal opinion is that 1.5456 if a mightly level (weekly touches 5/21/10 – 7/27/07) and a H&S type formation is possible to at least test the low channel line. I have not positioned on EURAUD but am short EUR on EURUSD.

    thanks again :)

  • bimala

    I am going to trade it but in down side not taking a buy position, only sell position because it just hit the Pivot Line. I guess every body needs to look from that angle!

  • Salvatore Serpico

    prejudice and always a pleasure to follow his analysis, however, if we take a moment a long-term analysis and graph mansile true that we are in an uptrend but it is also true that in January we had a spinnig top level above the 0.38% fibonacci February while we are in the presence of a bullish candle but does not indicate a right direction then personally I’d rather wait for something more substantial right on the 0.38% fibonacci level to enter in favor of the current trend

  • Fabrice Goeyvaerts

    Hi Chris,
    I’m sharing your analysis.
    Set a pending order at 61.8 Fib. retrace that triggered.
    SL under low of swing used for drawing Fib. levels.
    TP at -61.8% Fib. extension.
    Tks for analysis.
    Fabrice