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!
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).
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.
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.
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).
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.
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!
Latest posts by Chris Svorcik (see all)
- How to Use Support & Resistance for Determining Entry Zones - November 20, 2014
- Forex Trading Opportunities on Aussie, Loonie and Kiwi - November 19, 2014
- Forex Analysis & Setups on the Majors - November 17, 2014
Winner’s Edge Trading, as seen on: