Here we have euro-dollar on a one hour chart.
The support that I have drawn in red is quite easy to see. At the beginning of the chart,
the price goes there several times and we can see that this level always rejects the price. After the
action in the first part of the chart,
we can say that 1.0855 is a level where buyers find convenient to buy the couple.
The demand always increases when the price is near that level.
So what we are going to do is to study the price action when the market reaches that level again.
Going on with the chart,
the first time that we can start to study the candlesticks is here because the price is getting closer
to our support.
I wanted to zoom in so we can have a better view of the candles.
What do we have right here on the support?
We have a hammer.
The lower shadow says that the price went deep into our support area,
but then the price closed above the opening.
So this is a good opportunity to get a long position and I'm going to draw my line that represents the
entry level at 1.0860.
Also, if we think in terms of risk to reward opportunity,
this is a huge chance.
We are very close to our support and we can place a tight Stop-Loss, playing with a risk to reward
that is very convenient.
Think of my suggestions I have given to you placing the Stop-Loss.
I want you to place the Stop-Loss in an area that proves that your analysis was wrong.
Our trading idea is based on the assumption that the support is going to hold and reject all the attempts
of the sellers to break this area and push the price lower.
So if the price goes below the support area, our trading idea won't be valid anymore.
This means that we can place a stop loss right here below the support and you can see that we are risking
about 25 pips,
so I'm going to adjust the price at 1.0835 and colour the line in red.
So for this trade we only risk 25 pips.
Following my tips about the take profit, I want to place my line here, 50 pips above the entry level, in
order to have a risk to reward of 1 to 2.
Now, is this line too far from our entry level?
I would say no.
The price can reach this level.
It was actually at that level 24 hours earlier. Is the price too close to the entry level?
I would say yes this time. The chart shows that the price can go higher than 1.0910,
so this time I'm going to increase my take profit and have a better risk to reward ratio.
I place my take profit here at 1.0960.
So 100 pips far from the entry point.
In this way, I have a risk to reward of 1:4, that is pretty good.
Let's go on with the chart to see what happens.
Ok, so at the end we get our profit here,
but let's analyze what happened in between.
After the hammer, the price starts to go up.
This is quite good because it means that the analysis was correct.
Then there are several candles that push the price down
and with this candle, we are very close to our stop loss. From one side,
I would be worried at this point, from another side I have another signal right on the support.
I have this bullish engulfing pattern that once again is confirming that buyers are stepping into
the market when the price is around
1.0855.
Then nothing really happens till this candle
that represents a turning point for this trade.
The price finally goes up and leaves the support area behind. After this candle, buyers are completely
in control of the market
and nothing stops them from reaching the take profit that I have placed.
Actually the action of the buyers is pretty strong and I would say that the price can go even higher than
this.
If we go on, we can clearly see that there was a chance to get an even better profit.
But I can't really complain even if I missed the chance, it was anyway a good trade.