Here we have euro-dollar on a 4-hour chart and you can see that I have drawn a channel, an up channel
to be more accurate, to identify the up-trend.
Maybe it is not so clear on this 4-hour chart,
so I switch to the daily chart to give you a better view of this up-channel.
Ok, let's go back to the 4-hour chart to check when this up-trend started.
So I need to go back and you can see that it's quite a long time ago. We can say that it started here but
of course, at this point of the chart, we couldn't know that
an uptrend was taking place. We could find out about the new uptrend only after several days with
other clues on the market.
For now, we can only say that the price hit the bottom of this uptrend line many times, then going on
the price hit again the same level here. The price goes up then and it hits the top of the channel that
I have drawn.
By this time, I could start to figure out that the pair was in an uptrend.
I'm talking about the end of May.
If I couldn't identify the up-channel, at least I had my uptrend line at the bottom, which is quite clear
because you can see that the price went there many times like at the beginning or, going on, another time
here.
So at least we had a hint of this new uptrend simply following our trend line.
So starting from this part of the chart, I will look for long positions at the bottom of the channel,
that means that I want to buy Eurodollar when the price is convenient because we are in an uptrend.
So what I'm basically going to do is to monitor this line here and check the reaction of the market
when the price is near that level.
The first time that I'm going to monitor the price and look for trade opportunities is here. The price
goes on the line and I can start to study the candlesticks to check if there's a good opportunity to
enter my long trade.
So there are two long red candles and we have another red candlestick on the line. For now,
there's no clear signal to buy the currency pair.
Even going on, we have three small candles, so we can imagine that the market is taking a breath and
the battle between sellers and buyers is even.
And they are preparing the next move.
Actually this could be the first signal to buy the couple, because it looks quite suspicious to me
that the price is coming from a bearish retracement and it stops right on the up-trend line.
For me this is the first time during the bearish retracement when sellers realized that they need to
be careful at this price.
Then we have this long green candle that forms a bullish engulfing pattern because it engulfs the
previous candle.
Actually not only that last one but the last four.
So I can open a long position after this pattern.
It perfectly makes sense.
I studied the market to find out that euro-dollar is in an uptrend.
So I was waiting for a good opportunity to buy at the bottom of the channel, then a bullish engulfing
pattern shows up and is telling me that buyers are strong again and they push the price higher.
So how to consider a position with this bullish engulfing pattern?
First of all, I'm going to draw my lines: one for the entry, one for the Stop-Loss and one for the take
profit.
The first one is my entry and I want to set the price at 1.1165,
that is the price that I want.
I also colour my line with a light blue,
so it is clear that it is the line that identifies my entry level.
So this line here on the Meta trader is my entry level
after this bullish engulfing pattern. Then I need to decide my stop loss and my take profit.
Let's talk about the stop loss first.
I want to place it below the channel and if it is possible below the previous low.
So what I need to do is to look for my previous low
and it is quite easy to find it,
I can see that it is here.
So my line will be here but I want to colour my line in red because this will be my stop loss.
Also, I'm going to look for other recent lows like this one that is not very distant.
Just about three weeks earlier.
So I will draw another line on this low
and another consideration is that whatever Stop-Loss I'm going to choose, it will not be at the same
point of the previous low.
Of course I will move to stop loss below the previous low, because I want to set my Stop-Loss in an area
that the price doesn't reach very often.
So let's say that this one is 1.1131, I will change it with 1.1120.
And that's it, we have the line here now. This one is 1.1108 and I will change it
with 1.1095 for example.
So below the last low.
Ok, so I need to decide which one I want to choose as my Stop-Loss for this position.
Both of them look fine for this trade, but I'm going to choose the lowest one for a very simple reason.
I can have a very huge take profit because the top of this up-channel is very far.
So I don't have any problem in terms of risk to reward ratio. Even choosing the lowest Stop-Loss,
I will still have a convenient risk to reward ratio. If I choose this one,
I'm going to risk 70 pips, but you can see here, at this point, we are near 1.13, that is
more than 135 pips.
But I can go even higher because the top of the channel is still far from this point.
So I will have a very very good risk to reward ratio. So I can have a larger stop loss this time, trying
to avoid that
a random movement will hit my stop loss before the price continues to follow the uptrend.
So I delete the first stop loss. About the take profit, I do like this to check the top of the channel
so I can choose a take profit near the top of the channel.
I don't really like to have the take profit at the top of the channel because remember that the trend
lines, like support and resistance, are areas not just lines that the price hits
and then comes back.
So I'm not expecting the price to hit the line every time but I expect the price to reach an area near
the top of this up-channel. So I can place my take profit around here at 1.1435 and
I'm going to fix the price
and I'm also changing the color of the line with a green color because this is my take profit.
So, at this point, I will have a risk, in terms of pips, that is 70 pips. But I will have a potential reward
that is 270 pips,
so a bit less than a 1:4 as a risk to reward.
So let's check how this trade was going.
I go back to my normal chart so we can better analyze the candlesticks.
I can zoom in maybe.
No actually I think it is fine like this, otherwise we will lose the view of the big picture on the market.
At the beginning of the trade,
everything seems fine,
I have a small red candle after the bullish engulfing pattern, but then I have a strong green candle
that confirms that my trade is correct. Then I can see that the price goes back
and here I can start to be a bit worried even because this red candle goes below my last low so I'm
not very happy at this point of the trade but I can't expect that every trade starts well,
otherwise there's no need to set a stop loss. Going on,
I can see that the trade went up again,
but honestly I wouldn't be too happy about that because, ok my trade is going up again,
it is near my entry level and this is good,
but you can see that it is outside of the uptrend channel and this is not very good.
I don't expect the price to be 100% of the times in my channels. When I draw a channel,
I try to include 90-95 percent of the time that the price has spent in that level.
So it's still fine if the price is out of the channel for a while but then I need it to go back to the
channel.
Otherwise I can start to think that the price has broken the channel.
So for now I'm not losing the trade,
it is even,
but I'm a bit worried. Going on,
I can see that the price goes back to the channel, first of all. There's this first candle that is almost
a marubozu and it is very important because it pushes the price back to the channel. Then I
have a second candle that is almost a marubozu again.
So after these two candles, I'm very confident that my analysis of the market was correct and the Eurodollar
is following this uptrend. Then from here, everything becomes easy.
I could be a bit scared by this candle.
Probably it was a news that pushed the price down.
But then it closes near the open
and actually this is another confirmation for me that buyers are strong on the market. Then the price
continues to go higher
and hits my take
profit at 1.1435, giving me a reward that is almost four times my risk.
So the trade has been successful.
We haven't used any magic trick to analyze the market.
We only used the chart and our brain, I would say.