Here we have Australian dollar against the United States dollar on a 4-hour chart.
I have identified this downtrend line that connects thee lower highs. Of course in the space within
the first two highs, I can not be sure that there's a downtrend, but after the price forms a lower high
and then goes down again, I'm sure that the market is in a downtrend.
How beautiful is this chart?
This is a great example of how understanding candlesticks can give you a clear picture of the market.
Here right on the trend line,
we have a shooting star that inaugurates a new down move.
I wouldn't have taken this one because I could not be sure that the price was in the downtrend.
But look at this, again on the trend line.
We have a first bearish engulfing pattern here,
with a long upper shadow that is telling me that buyers failed the attempts to push the price over
the trendline.
Then a second bearish engulfing pattern here, again on the downtrend line.
This is beautiful.
I look like a kid recording this video, it is just because Forex trading has usually the tag to be
a difficult topic, especially when we talk about technical analysis.
So I'm happy to share with you this kind of approach to the market and I'm happy if this can help you
to make your life easier when you analyze the charts.
So coming back to our analysis, I actually opened a short position on this pair, right after this candle.
If this candle doesn't look so clear to you, this pattern leaves no doubt
and you could have opened a position at least after this bearish engulfing pattern.
Let's analyze the position I have taken on the market.
The entry level is quite easy.
I want my trade right after this candle, so I took 0.7530. As you know I like to get my trade with
a price that ends with zero or five,
so I can calculate my stop loss and take profit faster.
Now I have to decide where to place my stop loss.
I want my stop loss over this trend line.
So I decided that 0.7570 is a good level because if the price reaches my stop loss, my downtrend line
is clearly not working anymore.
So I have a risk of 40 pips and I'm going to draw my take profit line 80 pips below my entry level
in order to have a risk to reward of one to two.
Is this price too far from my entry point?
It is not too far.
The price has already tested this level in the past and we are also in a downtrend so I expect that
the price can go even lower than this. Is the take profit too close to my entry level?
Maybe yes, I can increase my take profit because as I said I expect the price to go lower than this level
because we are in a downtrend and I expect the price to form a new low.
I move my take profit by other 40 pips.
So I have a risk to reward of one to three and this level seems fair.
I think that the price can reach this line if the downtrend continues.
So this was my position.
Let's see what happened.
Well, this is just amazing,
I wish I could have trades like this every day.
The price went immediately down and reached my take profit in about half day.