Day trading example with eur/usd

Hi, I wrote about my expectations regarding eur/usd pair and gave you the entrance point on the pair. It was a breakout trade that started at 1.3188 level with a stop loss order at 1.3144. I took partial profits at around 1.3240 and then 1.3290 level. As you saw the pair collapsed yesterday. Some analysts started screaming about the end of a trend. I already mentioned in my previous post that I do not expect the pair to reverse before New Year and I intend to search for opportunities to jump into the market by going long the Euro against the US dollar. And I haven’t changed my opinion on the matter. I am still watching the market closely to see for extra day trading opportunities. One of the kind presented itself today and I want to talk a little about it in the post. 

When I search for opportunities to day trade I always want to do one important thing – to enter my day trades in the direction of a prevailing tendency. If the market is not in a range, but trending or in a short term swing (as eur/usd is at the moment) I will never make counter trend trades, but only implement those in the direction of a tendency. If you look at eur/usd chart you (with no doubt) see that the pair is in an upward swing. It means I am only willing to go long Euro and sell short US dollar. 

Now, how do I choose a spot where I get into the market? Firstly, I wait for a retracement or a counter trend move. Secondly, I find some nearest support level and wait for the security to get there. Thirdly, I wait for reversal patterns at the level to see whether counter trend move is over or not. Those usually are 123 patterns and candle reversal patterns. If everything happens according to the described scenario I go long when the security leaves 123 pattern or I place a buy stop order above the bullish candle (1 hour or 4 hour chart). 

So, I saw eur/usd collapsing yesterday. Pretty sharp! It means a counter trend move started. I started searching for a possible place of support. And guess what, it wasn’t really difficult to find. You most probably know this sampler saying of classical technical analysis that resistance becomes support and support becomes resistance. I have mentioned that I took a breakout trade at 1.3188 level a few days ago. The area was resistance at the time. Guess what has it become now? Support! 

So, what happened later? The pair came to this level, formed 123 pattern and bang! Went up again. If you look at the chart below you will see the 123 pattern on 1 hour chart around the level. When I saw the pattern I placed my buy stop order above it and the market took care of it by breaking the level and going up.

Oh! I forgot to tell you how I get out of my day trades. I watch for obvious resistance and support levels, but most often I close my positions at an even number. Today the pair managed to reach 1.3294 level before going back to today’s breakout point of  1.3215 (well, a bit lower) and is consolidating now. 

I would not be surprised if the pair took off upwards again tomorrow. Looks like another 123 pattern is formed at the level! I seldom trade Asian session (only about 5 percent of my day trades are implemented during that time), so I will wait for early European session to see how everything looks at the time. I might take another long in eur/usd tomorrow. 

I do not think I will keep it open longer than 8 hours as quite a few brokers will not be working during holiday season and mine seems not to be working at the time too. So, I do not want to take risks trading during this time. 

Ok, I think it is time for me to finish now. I promised to give you some thoughts of mine on Japanese Yen and I did not forget my promise. However, I will not do it today. Maybe tomorrow, but most probably some day during the weekend.



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I hope you understood the way I day trade and it will help you in your trades. See you soon.

Ok. I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

123 pattern in eur/aud

Hi trend traders and independent market analysts. Today I wanted to remind you about importance of 123 pattern in your trading. I hope you noticed that very often at the end of the move (in a range or a trend) we have some reversal patterns. In most cases they would be: head and shoulders or 123 structure. I wait for those patterns near important support and resistance levels or at the end of a swing. If the move is strong and continues for a long time you will want to search for a reversal on daily or even weekly charts. If it is a short term (one week or a few day move) you would be willing to see the pattern on 4 or 1 hour charts. 

I want you to look at eur/aud daily chart and see two 123 patterns there. Both of them formed at the end of strong moves and presented unique opportunities for those who like trading reversals to enter reversal trades and jump on to a new developing move. As eur/aud tends to develop big moves you would definitely have to watch the pair for possible reversal patterns at important support and resistance levels.

See also:

123 pattern

Resistance

Divergence

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

Head and shoulders pattern

Head and shoulders is the topic of the post. Those who have any understanding about technical analysis definitely know what it is. Let me talk a little bit on the theme. I will give you a chart first and some theoretical and practical points later. 

Head and shoulders definition

As you may see head and shoulders pattern is a reversal pattern that usually happens after a prolonged uptrend or a swing. It consists of three highs: left shoulder, head and right shoulder. The structure is joined by a neckline that constitutes support. 

How is head and shoulders pattern formed?

This works best on longer term charts. Firstly, there should be an uptrend in place for the pattern to be as effective as possible. After a prolonged uptrend prices may start going kind of parabolic and suddenly collapse. This helps to form the left shoulder and the point for a neckline. Then uptrend resumes and prices go beyond previous highs (left shoulder). Then security collapses again and lands somewhere near previous support. Security rallies for the last time and finds resistance lower than the head is and collapses again. This time, it goes beyond support and a downtrend begins. If the security is not able to break the neckline, the pattern is usually distorted and the security either starts going sideways or resumes its’ upward trend. 

How to trade head and shoulders pattern on daily and weekly charts

On daily charts the pattern can be very big, stretching from three months to one year or sometimes even more. So, one has to be pretty patient waiting to see possible place of entry. In fact it is much better to spot those patterns on weekly charts (if we have in mind reversal that happens after a very long uptrend is finished). 

To tell the truth one can never be sure if one is looking at a real head and shoulders pattern or simply a pattern which looks like the real one. Difference between real one and a fake one is not very big. The real one is fulfilled, the false one is not. The real one is fulfilled when the price after having formed the right shoulder collapses through the neckline. That the only way to know whether the pattern is the true one or a false one. You have to wait for a collapse through the neckline. So, the best way to trade it is to place a sell stop order below the neckline and go short when the prices go beyond the level. 



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Disclaimer: All trading involves risk. Only risk capital you’re prepared to lose. Past performance is not an indication of future results. This content is for educational purposes only and is not investment advice. 

False breakouts in head and shoulders pattern

It might be a false break too and the prices can come back and go above the neckline. However, you have no other choice, either you risk and jump on the trade or you stand aside and continue waiting. In the latter situation you will be sure that it was the true head and shoulders pattern after the move down have gone so far that it is no longer useful for you to join it. So, you go short after the neckline is broken.

Head and shoulders after a swing

These kind of patterns happen all over the charts and on various time frames. They are pretty reliable when they happen in a range after a prolonged swing. I find four hour charts most reliable to identify the pattern and trade a reversal of a trend. The rules are the same as in the pattern on daily or weekly charts. You have left shoulder, head, right shoulder and a neckline. You go short below the neckline if it is broken and go with the swing down as long as it has momentum. Very often the break of the neckline may coincide with some economic news as it happened in the above example with eur/usd pair or eur/cad pair last Thursday. News from Europe pushed those two pairs below their necklines and we had a nice move down (which is not over yet). 

That’s how you trade head and shoulders pattern. I hope to expand the post in the future adding more information and examples of the pattern.

Read related posts:

Inverted head and shoulders pattern

Analyzing chart patterns: pennants

Analyzing technical patterns: flags

Wedge technical pattern

How to do technical chart analysis

Six key elements of technical analysis

Triangle technical patterns

Resistance

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.