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Trend Continuation – Forex Day Trading Setup USD/CHF 10/05/2011

Seem like we have been hitting the USD/CHF a lot lately. Correlation in the forex market is very constant on a day to day basis lately, however some pairs will give better entries than other’s and it just so happens the USD/CHF has been that pair the last few days. What I mean by better entries is… wide is the stop? What is the risk vs. reward of the forex trade setup? ECT…

Breifly I will mention the trades taken in the forex trading room and then we will more on to the educational part of the recent trade update. Overall we took 3 trades today. Two ended up break even, and by the consolidation of the USD/CHF during our trading session I think you can understand why. The final trade we took was a long on the USD/CHF from .8783 and currently that trade is up around +30 pips with a break even stop and a take profit of +100 pips. I selected that take profit level because it gets us out ahead of the psychological barrier of .8900, it’s previous support that could be resistance on the way up, it is the 100% fib expansion for the first 4H move up, and I choose that take profit because the 200 EMA on the 4H chart is right around .8900 and again I wanted to be out well before the 4 points I just mentioned.

I’m going to be covering a confirmation entry that occurred outside of our trading times, however it gave the same entry we took. This trade is more of what you would call a “textbook” type confirmation entry and therefore a better learning tool for those still learning this specific forex trading strategy. In the chart above you can see the black line provided short term resistance on the way up, and as always….resistance when broken will become support. Therefore candle #1 came into this support, pierced through it and then closed above it thus giving us our reversal candle which is the first candle in the confirmation entry.

In the case of a long trade setup after you get your reversal candle, you then look for the next candle to give you what we call a confirmation candle. In order for the next candle to be a confirmation candle it must close above the body of the reversal candle. As you can see candle #2 clearly did that. The first two candles are what give you your direction and the third candle is where the entry is taken. When the third candle pulls back into the body of the reversal candle this is where the entry should be taken.

As you can see the market missed pulling back into the body of the reversal candle by about a pip or two. Where you take the entry is the one part of this forex trading strategy that requires a bit of discretion. When you have a very long confirmation candle there is a higher chance the market may not give you the full pull back, and this is exactly what happened here. Over the course of time trading this strategy you will begin to select better entries by judging the length of the confirmation candle, and more importantly by watching your other correlation currency pairs. I will update the outcome of the trade tomorrow when it has ran it’s course. Until then happy trading everyone!


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