AUDUSD Long - Potential setup. Care to critique?

Trading Discussion
1

12h

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Not much to see here at first glance. A strong, and healthy, bearish trend for the past couple of days. However, looking at the last candle, it seems like price was repelled a little bit by a support level which has historically held up multiple times.

8h

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Not enough of a setup for me to take on the eight hours either, but as you can see the trend is clearly showing signs of weakness. Price has failed both to close below the support level, as well as make a new low compared to the one price created the last time it bounced. This is significant, and shows me the market is clearly paying attention to this support level - which can be found around the 0.7666.

6h.

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The setup is taking form on the 6 hour chart. This would already be enough for me to be on alert for a counter trend reversal.

4h.

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And here’s what I was hoping to find on the lower timeframe. The last candle tells me sellers are exhausted and that a transition of power might be imminent.

I will enter a long trade if buyers are able to create a new high after the last candle, and ideally I want this high to be on either the 6h or the 8h chart.

Stop loss is going to be placed below the support area, below the low of the last two 4h candles and below the low of the candle that formed way back when price bounced from this level. This is going to amount to a 25 pips stop loss as for current price. I will probably get a 30 or 35 pips stop loss, depending on my entry.

My target is going to be placed right below the next resistance area, at around 40 pips from my ideal entry. This amounts to a 1:1.6 ratio on a 25 pips stop loss. I might consider putting the stop loss just below the last two candles’ low for a better ratio, although I would like the extra protection provided by such a historical low.

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My only concern about the trade is this area marked in orange, where price has stalled in the past. Nothing major, or else I wouldn’t even consider entering. However, I will have to keep an eye out on how price reacts when approaching this zone, and will consider exiting early if buyers don’t show enought strength to push through.

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1 Like
2

Posting pictures through 3rd parties has disadvantages - in that we have to go and access them, and also after a period of time, they disappear, which destroys the thread for any who come later and are interested.

I do not look at 3rd party images when it is perfectly normal to post them direct.

Sorry - can’t answer your query because I can’t see the pictures.

atb

F

3

I didn’t think that would be a problem. How do I do that?

4

7th item acrossfrom the left, in the header section of the message is a line with an arrow pinting upwards - click that and reference the stored photo.

Brings the photo on to the post. :slight_smile:

5

Image added. Thanks!

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6

I think this would be a “courageous” trade i.e. quite risky, but potentially possible. I think the key point here is to be convinced that the price actually bounces off this support rather than just pausing here for a “breather”.

I agree that the week finished resting on this major support level, but that may not be a sign of weakness, rather just the weekend after an aggressive down move over a couple of days.

Here is the daily chart:

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There is a broad down channel still offering potential on the downside if this support is broken, but the support zone is a strong one.

Also, looking at recent similar aggressive down moves (in the first two red circles), there is potentially more than a couple of days of down moves before a pullback.

It is an interesting situation and this is a good area for a potential pullback - but one has to respect the strength of the last two days before assuming the price will bounce straight off this band. You may see an early up-bounce at the start of Monday, but will it be sustainable sufficiently enough to make a trade? There lies the fulcrum between courage and foolishness. If it bounces you are the hero…:slight_smile:

You have identified a prerequisite for defining your confirmation of a bounce taking place. That is good practice. Make sure you do wait for it and not anticipate it before it actually transpires…

This is not a pair that I trade personally, so don’t take my comments as anything “authoritive” here!

2 Likes
7

There is a bearish channel, true. But, looking at the bigger picture, price is also approaching a significant trendline on the daily chart. I guess the question is whether I should trust the recent bearish strenght indicated by the channel, or the long term bullish sentiment.

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1 Like
8

Yes, I agree with you about that overall uptrend on the daily, but…

You are looking at a long term trend that stretches back some two years. Whilst that is indeed valid it creates a difficulty in terms of the size of the trade you are currently considering. How can one accurately identify on a two-year daily chart a trade with a stoploss of around 35pips and a target of 40 pips? The margin for error in selecting your levels is quite large.

This is the dilemma for TA. No matter how much you look at it, you cannot predict what will happen next. All TA can do is identify, as you have smartly done, a crossroads where we are now. All TA can do is say, if it bounces off this zone, buy it, if it breaks through, sell it. Our job is to define what criteria we need to be fulfilled before deciding which path is taking place once it happens.

An interesting set up, I will follow what happens here! :slight_smile:

9

That’s lovely ! :sunglasses:

I think your logic is basically sound, but it is a trade which I would use as a “learning trade” and watch what actually happens, for a matter of some days, possibly weeks.

As @anon46773462 says, it is a “Brave” trade, (although it perhaps does not look that way at the moment) and the fact that “they” “Parked it there for the weekend” may turn out to be relevant.

However IF it works, it could be worth quite a few pips maybe a hundred plus, or even more ? .

I believe you are on “Demo” and as such, I think there may be a Lot of merit in taking the trade and watching the action and trying to work out the “why of it” - because it is a situation which is not uncommon.

I shall be watching with interest.

All the best

F

1 Like
10

Am I right in thinking you are now in this (demo) trade with your stop/target as per your earlier description?

11

If so, is this now through your stop-loss level? (If I understood your levels correctly?)

What are your thoughts on this?

We still seem to be within that daily uptrend that we talked about?

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12

Yes, my entry was triggered and I was stopped out for a loss of 20 pips. Oh well, it happens. I guess I’m still going to keep an eye on this market for a potential continuation reversal, if price goes back to the now resistance area to retest it and bounces back down.

13

That does not matter. The important point is to rate what happened.
I think it is always good practice to look back and rate what kind of trade set up it was. The logic was ok but was it a prime set up or only a secondary one.?

Two things i think are worth noting: it was a counter trend direction and the bounce had not defined itself sufficiently.

By doing this you can build an instinctive feel for good trade set ups and risky ones. IMO that is part of the general edge that we are looking for in our trading.

On to the next… :smile:

1 Like
14

I don’t neccessarily think your reversal trade was “Wrong” yet. Keep watching and see what does happen in the next few days (or weeks even)

It may yet turn ot that your entry was not optimal and your stop - loss way too tight, but your base logic may still show to be correct.

“picking tops and bottoms” is not easy, but if you can do it, there is potential for good returns.

However, they are long -term trades if you’re picking major turns and the best advice I can give, is not to get involved - unless you are naturally inclined to do so !

IF you are, then watching what goes on AFTER your involvement is over, is an essential pre-requisite to trading them for real.

But R:R s of 1;2, 1:3 or more are regularly achievable - which allows you a good few “Fails” before you are out of pocket.

Like I said

Why would that be ?

Time will tell - but this style is not an easy way to make money.

You Cannot trade reversals successfully, in the way you have been taught.

atb

F

1 Like
15

While I was going against the trend, I wasn’t betting on the trend’s last breath. Trends rarely go straight down or up, and often do small pullbacks only to then resume the initial move. I thought this was the beginning of such pullback, but not the definitive end of the whole move.

1 Like
16

Ok - apologies for intervening :sunglasses:

I guess you were just one of many, many people who had similar trades at the weekend - :slight_smile:

17

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Hi. Are you referring to this sir? I am just a newbie who really aspires additional knowledge in forex. Thanks for your inputs. This is on D1 timeframe.