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Breakout Continuation Forex Trading Strategy USD/CHF 09/05/2011

Today there were quite large moves in the forex market during the NY trading session. Unfortunately the fx market took off towards USD strength and never looked back. With the GBP/USD and the EUR/USD both falling aggressively, we expected further continuation up out of the USD/CHF as per normal forex market correlation, but yesterday’s overall high was just to tough to break.

Anyway, let’s break down this trade and hopefully my mistakes with this one will help others not repeat them:) First notice the previous resistance that becomes support once the market breaks above it. This level is shown by the black line. The large bullish candle breaks through the resistance and then closes above it. Immediately after that the market pushes back down to this previous resistance level, which now acts as support.

Candle #1 touches this support level and then closes above it thus giving us our reversal candle off support. The next candle closes above the body of the reversal candle, therefore giving us a confirmation candle up. These two candle gave us our direction we wanted to enter which was long. Because the Euro and the Sterling were both moving down so fast I did not wait for the third candle to pull back into the body of the reversal candle as I normally would. This would have given us a much better entry and more than likely would have offered us enough to take some profit out as it came into the overall highs.

Looking back on this day trading setup I see two things that I should have spotted before taking the trade. #1 the market was way to close to yesterday’s highs. The previous day’s high and low is almost always major intra-day support or resistance, and should be respected as such. The second mistake made here was not waiting for a pull back. This forex trading strategy in my opinion, gets a lot of its overall profitability because entries are taken on the pull back. When you do this you are not only getting a tighter stop loss but additionally a much better risk/reward. Therefore when you do not wait for the pull back you eliminate a part of what makes this forex trading system so profitable overall.

Currently for the month we are still hovering right around break even. Last week did not offer the quantity of opportunities normally seen in any one given trading week and we only ended up with a small profit. This trade ate up that profit, but its still early in the week. The important thing to remember in forex trading is that it is not a sprint, it’s a marathon. That being said the confirmation day trading strategy always wins the marathon each month by turning profit, and therefore the key is to simply keep your head down, be patient, and take only the best day trading setups that meet the criteria for entry. I hope trading is going well for everyone! I will see you all tomorrow for the next recent trade update!


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