I would like to share with you a trade that I use just about every day on almost every currency pair.
I look for two basic trade set ups and they are both in his chart I have prepared for you.
I’m sure that many of you have a similar method for trading the same basic pattern but I have put some structure to each one of the entry points so that I am always aware of my stop loss and profit targets.
This particular trade developed on the USD/JPY. I used a 30 minute chart for this entry.
The first thing I have to be aware of is support and resistance on whichever timeframe I’m using.
In this case you will notice and orange horizontal support line at approximately 107.67.
I wait for a closed completed candle to close below that support level.
Once I have that I call it a continuation signal candle.
This does not mean to me that I will enter immediately after the candle closes, it just gives me a signal or a heads up to the possible breakout and which direction.
If entered after the continuation signal candle, you will notice that the stop would have to be back up above the swing high which would result in at least a 65 pip stop loss.
To minimize the stop loss I wait for a pullback and a second candle pattern which I call a tech one trade.
This is a closed completed candle pattern and usually confirms the previous continuation signal candle. Once I have that second candle pattern which is usually a small evening star, engulfing candle or dark cloud cover type of pattern, I will then enter as price is taking out the low of the continuation signal candle.
This takes some patience, waiting for this pullback.
It is also a conservative way to trade a break out of consolidation. I don’t always see the pullback after the continuation signal candle however it happens often enough to wait for it.
The new stop loss is just above the small swing high, (second white candle after the continuation signal candle).
Before I enter my trade I must identify any potential profit targets. In this case I was looking for the 1.618 extension as a possible target. This lined up with the psychological level of 20. I also scale out at two different profit targets to maximize my profits when price starts trending.
The first profit target resulted in approximately 40 pips with less than a 40 pips stop loss.
Once I reach my first profit target I close anywhere from half the total lots or three fourths of open lots.
I then set the remaining open lots at a break even stop loss so I don’t give anything back.
My second profit target when price appears to be trending is usually major psychological levels or support and resistance levels. In this case the next target is 107.00 which is a major psychological level.
However if you can actively manage the trade, this particular trade would have been easy to put a tight trailing stop and follow down to additional psychological levels or support.
The important concept here is to identify the beginning of a potential breakout of support or resistance, and then being patient enough to wait for a pullback and a second entry with a smaller stop loss.
I have prepared a video explaining this same concept. If you would like to see this 17 minute video, please click or paste the url below and look for the video titled “ Trade setups and Stop loss levels”.
Please share your comments and strategies for trading a pattern similar to this one, it will be interesting to see the many different ways to trade it.
Thanks for reading
L.C.
udaytrading.com
http://www.udaytrading.com/freevideos/freevideos.htm
please see chart below
A great trade to use everyday
Linear Mode
