Forex Trade Setups – Day Trading Fx Trades 05/04/2011
Our first trade of the day in the live trading room was a EUR/JPY long. As with any confirmation entry we are always looking for a clear level of support or resistance to take a trade from. As the market came down to support we had marked on the EUR/JPY we were looking for the first candle in the 3 candle confirmation setup, which is a reversal candle. You can see at candle #1 the market gave us the first candle in the setup. The next candle after the reversal candle is called the confirmation candle. In order to be a confirmation candle the market simply had to close above the body of the reversal candle (candle #1) which it did very clearly. After those 2 candles formed we had our direction and very simply needed the third candle to pullback for the entry. The confirmation entry rules state that you take the entry when the 3rd candle pulls back into the body of the reversal candle, however the market doesn’t make that pullback from time to time.
After making a decent pullback the market started to bounce back up, at which point we went long. This is the one part of the trading strategy that requires practice. Most other criteria for this day trading system is cut and dried, it either meets it or it doesn’t. However with the pullback candle you must use a little discretion to allow for entries that do not quite make it all the way back into the body of the reversal candle. Overall we took +30 pips out of this trade.
Our second trade of the day was as well a long position, only this time on the GBP/USD. Earlier during the London session the Sterling saw a much better than expected Services PMI which sparked a 100 pip move following the economic news release. In addition to that and more importantly we had another beautiful confirmation entry. Again the market made a nice retracement into support and closed as a reversal candle.
Notice the candle with the black #1 above it. This was the reversal candle we used for our setup. The next candle gave us the confirmation candle up by closing above the body of the reversal candle by a few pips, and the candle following that gave us the pullback for the entry long. Overall we managed +20 pips on this trade and +50 pips overall for the day.
Additionally I marked another possibly way you could have entered on this trade. If you came to the computer a little bit later when the reversal candle with the red #1 above it was forming then this would have been your reversal candle, the nice bullish candle up following it would have meet the criteria for the confirmation candle up and the third candle gave you the pullback. As you can see if you would have taken the entry this way you would have had to have entered the trade before the third candle pulled back the the body of the reversal candle, because it never made it otherwise.