Daily Resistance Confirmation Entry Short On The EUR/USD 12/04/2011
Here we had a nice short position on the EUR/USD that was coming off of the daily highs. If you look back around January 15th of 2010 you will see a previous swing high on the daily chart. More importantly to me was the fact that the market had set a previous high an hour and a half earlier. This level is shown by the blue resistance line.
When the EUR/USD retraced back into this resistance level we then started looking for a confirmation entry to come together. The confirmation entry trend reversal trading system is something that repeats itself almost every single day. Sometimes it may take a few hours for this day trading strategy to setup,but if your patient the market will almost always give you a short term trading opportunity.
Once the market retraced into this resistance, the first candle in the three candle confirmation entry setup perfectly. Again the first candle, in the case of a short position, should touch the resistance area and then close below it. Preferably the reversal candle (first candle of the trading strategy) should look like a traditional reversal candle, (shooting star or hammer formation) and for this specific trade setup it did just that. After the reversal candle closed you can see the next candle formed a clear confirmation candle. For a short setup the confirmation candle simply needs to close below the body of the reversal candle.
Normally with the confirmation entry trading strategy you wait for the third candle to pull back into the body of the reversal candle and then take the short position. You can see the third candle never really made any pull back. This is a great example of why we use correlation of the GBP/USD and the USD/CHF when trading the EUR/USD. At this same time the GBP/USD was already dropping quite aggressively which is why we did not wait for any pull back before taking the entry. I highly recommend setting up your charts so you can see all 3 pairs at the same time. Doing so will give you a better opportunity to catch day trades such as this. Overall we managed +30 pips on this trade and got out. See you all in the trading room tomorrow!