The NZDUSD is looking tired now, not a great Breakout play. However its turned out fine for me having played it from the TL. There was Red Flag News last night at 9.45pm EST and as the day’s candle was bullish but had retraced about 50% l figured it was prudent to take my second position off as the news was looking a 50/50 exercise and l’m not a gambler. It gave me 106 pips at about 1/1.5 ish RR, a little less. That left the last position l added later on the 4hr which only had a 38 pip SL as a rider. The news must have been ok as price spiked up. As it was giving me 1/3 RR l then closed that to be done for the week, especially as we were approaching the high from 2011 were l guess lots of sellers are waiting. As it looks now that was l good call as l got out a pip shy of the recent top BUT it wasn’t necessarily the best thing to do. l still take profits- when l have them!- too early usually and haven’t learnt the discipline of leaving some on to ride out a possible new trend. This time l told myself that present mkt conditions are tricky for holding long term and over weekends, plus we are near an important top, plus 1/3 RR and over a 100 pips profit is good on the NZD. Its all true and, as a top trader said, getting 1/1 RR on a trade is much much harder than most traders think, BUT as DnB lkes to say, [B][U]patience[/U][/B] is vitally important in this game and l must start learning to leave positions to run more especially on Breakouts and first pullbacks in trends when runners are more possible.
Anyway its always nice to have a winner and my record is improving in that l am beginning to be on the positive side of breakeven as a regular thing these days so hopefully something to build on this year; going to try and stay with this thread again too and share the ride a little!
Have a great weekend all!
Finally:60:just remembered l saw a 4 min interview on Moneyshow.com where this quy has taken the Engulfing Bar (Ebar) or 2bar Reversal set-up and renamed it after adding a little tweak - a tweak we all probably add intuitively whereas he has codified it and re-named it! As the transcript was available l think it a good revision exercise for us all if l post it here! Enjoy!
My guest today is Huzefa Hamid and we’re talking about candlestick patterns, specific ones that are good for currency traders but probably all markets as well. Huzefa, talk about the smart reversal pattern.
Hi Tim. Okay the smart reversal pattern is a very simple candlestick setup. It relies on two candles and it’s a variation on Steve Nison’s engulfing pattern, and Steve Nison, as most people know, was the guy in 1991 who brought out his candlestick charting technique book.
He brought it over to the west when nobody had heard of it. Smart reversal is you want one candle’s body to engulf the previous candle’s body as the standard engulfing pattern is, but the key difference that we employ is that we have to make sure the wicks are of a certain length, and the reason is a candle with a long wick represents indecision in the market, whereas if you have a candle with a short wick that represents a decisive move.
Whenever we’re looking at the market and we’re looking at candles or bars we’re looking for the meaning behind those candles or bars. It has to have some kind of a context. It has to mean something. It has to represent some kind of sentiment or emotion in the market.
If we have a decisive move we can trade off that. When we see an indecisive move it’s confusion essentially and we want to avoid periods of confusion because they’re less predictable. What we do is we measure the wicks specifically and the length of the wick has to be a third or 33% or less of the entire candle length.
Now sometimes you can eyeball and you can see it’s quite obvious that the very, very short wick that’s a decisive move. Sometimes it’s not so clear and we’ve developed a very simple calculator or spreadsheet that you can come to our site and request and it will give you a wick measurement straight away rather than having you sit there with a calculator while the market is live and calculated out.
When we see an engulfing pattern you have, or a smart reversal pattern I should say, you have say a bullish candle one way and then you have a bearish candle another way, which engulfs the previous candle, and if both candles have a wick length that is a third or less that to us is smart reversal quite simply.
Well I’ve actually never heard about measuring the wick, but it makes perfect sense why you would do that, and so how long does it take then usually? Are we looking at the next bar to be lower right away, or could it take a few bars to happen?
Well, usually you have an initial thrust in the direction of the engulfing. Now we in particular love to try this in the daily time frame because there is a huge consistency with the daily time frame, and you find at the open of the next candle, the third candle, that half your risk is covered 89% of the time. It’s a hugely consistent setup, so we’re often getting in at the open of the next candle and we sometimes have a second entry at a retrace to gives us a better risk reward.
Alright. You have something kind of a cousin to the pin bar reversal. What is that?
That’s right. The pin bar is a one candle pattern. Again it comes from Nison’s book and Nison’s labeled it a hammer, dozer, a stone. He’s got about five or six different names for it depending on where it appears on the chart. We just simply call it a pin bar. A pin bar looks like a pin. It looks like we have a head at the top and a tail at the bottom, or vice versa, you have a head at the bottom and a tail at the top.
The key thing again we employ is we employ the 33% rule where the body is now in the top or bottom third of the candle. This is much easier to spot than a smart reversal being just the one candle.
Okay. Then each of these would be used in different ways or they are both signal and reversals?
They are both signal and reversal. When we look at the smart reversal in dailies we often just trade it by itself. We don’t look at any confluence of trend lines or Fib reversals or anything like that, but we trade it by itself on dailies. When you go into lower time frames we need some kind of confluence and with a pin bar you always need some kind of confluence, but it certainly is, we can use it as an entry strategy. You can use it also as an exit, so if you’re long on a trade and you see a pin bar it’s a signal to move your stops up or to get out of the trade, so on and so forth.
Watchlist for next week.
AUDUSD
Price printed on Friday a BEOB, after a Thursday of consolidation (IB) at a critical former Support. Confluence: steep TL to be confirmed+S/R+ema’s (mean value). The beob is huge so i’ll be looking for a retrace setup on H4
GBPNZD
I see a good area to look for shorts at 1.85 BRN, being confluence again with mean value and swing level (this horizontal level served also as S once in the past, if you zoom out your chart)
There is also a good looking setup on GBPJPY, but is not strong enough to me, too few space to run and the break below the BRN is surely not bullish oriented 
What do you guys think of it?
My First Post here!
I’m liking the EURJPY rejection candle, I’m going to go for a 50% retracement entry and 1-3 RR
Hey DaTrader,
Welcome to the thread 
Just be careful here, you’re working on a level that has been S/R a long long time ago (we’re talking of 2011).
Another thing: you want to see rejection candles in a trending market at swing point and that’s not the case here. Overall the pair is trending, yes, but look how we are stuck in a consolidation box in the last 2 weeks. You don’t want to trade into this mess.
Consolidation Box means that nobody is doing anything in this market, thus it’s a dangerous situation, you wanna wait for a breakout of this box and THEN look for a retrace (and price action confirmation) in order to entry (see chart)
Hope this helped
Not in my opinion, as stated above. Zoom out and check the TL’s forming a similar wedge
Hi,
Well l agree with what CryAgony says in many respects but l also think there is possibly an argument for an entry sometime soon on the EURJPY.
Looking at the chart above , it is a tricky situation in many respects. First, this has been a very strong trend but not a “normal” trend in the sense that the JPY weakness has been created by statements and possibly actions emanating from the BOJ about doing whatever it takes to weaken the Yen.Consequently the trend has been overextended for a very long period of time but has still continued shooting up until quite recently.Can this exceptional trend really continue without an extended consolidation period, yes of course, anything can happen BUT but no-one really knows, and it’s worth being cautious.
Technically speaking, ignoring fundamentals, it has now consolidated for a while in a range or its possibly made a complex two leg pullback, depending how you view it. Also, it has made a what l refer to as a Failure Test or False Break below the Range Support…both these terms refer to a set-up originated by Wyckoff and classically refered to as a Wyckoff Spring…and its printed a bullish pin type candle as its re-entered the range.As the range is pretty large at about 300 pips, this could well be an opportunity to get in soon if PA suggests it and still have room to take something off the table and move stops to BE before price reaches Resistance at the top of the Range.l admit its tricky and l wouldn’t want to enter below the BRN of 125.00, but l will keep an eye on the 4hr charts tomorrow with the important proviso that its a holiday in the US tomorrow and there is possible big market moving EUR news both tomorrow and possibly Tuesday.
Anyway, just thought l add to the previous analysis; hope it’s helpful.
l will be keeping an eye on the AUDUSD and GPDNZD set-ups Cry mentions for possible trades but l am wary of the GBPNZD as it’s at very deep low i.e as far as my charts go back to (1999) and so we could be seeing a False Break in this pair too…l’ll monitor the GBPUSD too to see how that pair is doing as its now at significant Resistance and if it starts to base here and bounce back up in its channel that could signal the end of the GBPNZD collapse.
Hpe we all have a great week ahead…safe trading!
I agree with CryAgony with the EURJPY chart, the trend is obviously up but the recent price action as fallen into choppy consolidation which can add risk to setups that form within that consolidation box. Yes there was a bullish rejection candle that has formed off the mean value support but also within stormy conditions.
Also these yen markets have been moving up in pretty much a straight line, we know that markets don’t move in straight lines forever so really we are at high risk of a market retracement here. The weekly shows more clearly that we are dying for a retracement.
At the moment looking at the EURUSD chart where things look like they are starting to change direction…
The chart is making Lower Highs and Lower Lows,
Price is now closing on the bearish side of the EMAs,
Price just broke a key daily support level on the back of a rejection candle signal CryAgony pointed out.
Now we’ve had consolidation under this support level which is now acting resistance, in the form of an Inside/Indecision candle, if price breaks the Inside Day low we could see this market make it’s next move down.
Pros say that we amateurs worry too much about entries and not enough about Trade Management, which often matters more! One of my mentors also says that if you go down to the 4hr for an entry still use Daily Stop Levels - he’s very against the idea of putting a stop just below the trigger candle - the whole world knows just where they are!
Anyway l re-entered the NZDUSD yesterday after a 4hr engulfing candle printed.My rationale is that after the BO of the Price Squeeze (Flat Top Triangle) price came back to test former R as new S. However, S holding doesn’t always mean it holds at or above the level as we mainly think; if it can dip below and take out some stops before reversing then right on, it will!That’s what l figured it had done - but l was too premature! However, with the pro’s words ringing in my ears l moved my stop from just below the 4hr trigger to below a significant level- a previous 4hr ledge. Well it saved me overnight by 7/8 pips …for now!
Let’s see if price can mount another run up…l’ll be monitoring it and ready to close early though if l see any more significant weakness.
So lessons learnt yet again…1) Patience 2) Use Daily Stops on 4hr set-ups or rather only enter on the 4hr chart when you are entering a Daily set-up and therefore use a Daily Stop if you believe in the trade and just use the 4hr to fine tune an entry and maybe get in a little earlier and thus reduce risk that way. 3) Trade Management can make all the difference to my trading.
Hey Michael,
This is why I just like to stick to the daily setups after the New York Close, because daily signal have much better consistency with their success. In reality you can put your stop as far away as you like, you just have to calculate your lot sizing to suit but the wider your stop is the harder it will be to hit your risk reward target.
But you’re right, setups on the 4hr chart are not easy to trade, and you can easily fall into the trap of taking crappy setups. I think 4 hour Price Action trades should only be considered when the daily chart is showing a strong trend in motion and only take strong 4 hour setups that form off Daily support and resistance lines.
on friday a outside bar foremd at the weekly resistance ,there is no trade idea… its caught in a tight range,last a outside bar is frustration.
after a strong data, eu inching higher,its turning the table?
Price is still stuck within the range of the Inside Day,
I am only considering shorting the breaks lower here as that chart bias is bearish at the moment.
The news causes a bit of fuss, generally news spikes against the trend ended up getting faded anyway.
If price breaks out higher then I will wait for the chart dynamics to all turn bullish again before looking for long signals.
Yep l agree…good advice…thanks!
Watching EU during the early Asian Session, didn’t get the breakdown in price last session and the candle closed with some bullish tone to it. However price has broken out upwards during early Asia, so Ill be waiting for this breakout the be faded when London is operating to confirm it’s a typical bull trap breakout that often occur around the Asian session time.
anybody took this trade? gbp is dropped like a rock
Nice one Vas,
I am in a silver trade at the moment which is really dropping. One thing I like about the metals is when they sell off they go off with a bang.
As suspected the early asian breakout move upwards has been faded when the market moved into LON/NY trading hours, there could be a potential price action setup on the daily chart at the new york close.
Also keeping an eye on the USDCHF chart as well with a nice setup forming there too.
Strange times indeed with these present Currency Wars! The RBNZ Governor evidently made a statement last night to say they would intervene to stop present NZD strength if needs be and lo and behold its dropped like a stone ever since taking my trade south with it!
Oh the joys of currency trading! :35: