Do you trade with the trend?
Well, in this video we show you two ways of trading the trend using support and a breakout.
Watch the video to learn more…
I’ll be going through EUR/NZD as we could have an opportunity to get long with it. I’m going to show you the different ways you can get into this market.
We are going to highlight two types of entry you can use when trading a trending Forex pair. EUR/NZD is one to watch for further long opportunities due to the strength and weakness of the two currencies. The EUR has been gaining strength while the NZ Dollar has been losing strength, showing an upward trend.
I want to be long on EUR/NZD because EUR is stronger than Kiwi at the moment. We know this because we’re getting higher highs and higher lows.
We’ve got this daily uptrend going on. Typically, we see types of trends within these impulses and retracement phases.
If the daily is in an impulse phase, you’ll usually get a four-hour uptrend. On an uptrending scenario on a retracement phase, you’ll get a downtrend on the four-hour timeframe.
When looking at the trend in detail, we see impulse and retracement phases. In an uptrend within a daily impulse phase, we would see a four-hour trend making higher highs and higher lows. In a daily time frame retracement, we would see a four-hour downtrend making lower highs and lower lows. Knowing this, we can understand what phase the market is in. Currently, the price is in an impulse phase with the four-hour trend making higher highs and higher lows.
In the four-hour timeframe, the market is making lower lows and lower highs in the retracement phase. But only until the market agrees with a higher high pattern. We’re going to see the daily impulse potentially continue.
We can see this clearer by going down to the four-hour time frame. In the grey zone, we can see a daily retracement phase due to the four-hour making lower highs and lower lows. Outside the grey zone, we can see that the market has formed a higher high and higher low showing us that the market is now in the impulse phase.
In that scenario, I want to be looking for opportunities to get long on pullbacks.
I like to look at previous structure areas and identify volume levels within that to look for long opportunities.
The recent pullback area is here, so we’ve seen the market in that impulse create a consolidation, then broke to the upside.
First entry type: Buy limit order
The first type of entry is a limit order entry, and that would come in when the price reaches the 1.68840 level, and we plan to see a rejection of that move.
You use limit orders when the price goes against you, and you use stop orders when the price is going with you.
I’m expecting that to happen in this consolidation zone. The most-traded level is the high at 1.68840.
In a trending market, we usually see the price return to the recent structure before seeing a continuation of the trend. Within this consolidation, we can identify the most traded level using volume profile analysis acting as support. We can use a Buy Limit order on this level to maximise the reward to risk ratio.
So, I’m looking for the market to come and retest this and continue its uptrend.
Limit orders are more aggressive than stop orders. However, they help you get a better risk-reward, so you have to weigh the pros and cons of each.
Second entry type: Buy stop order
Since the first type of entry would be a buy limit order, the second type of entry would be on a breakout.
If the four-hour timeframe is in a retracement phase, we can see that the hourly is making lower lows and lower highs.
You can look for the potential breakout of the trend line because this trend line is offering us resistance at the moment.
So, if we were to see the price rally up and break above this area, that would be a sign that the price was going to continue to the upside. Just like what we had when the price broke through the consolidation pattern. After that, the trend continued to move higher.
Now that the four-hour is pulling back, I’ll be looking for those two types of entries.
The second option is to watch for the breakout of a counter-trend trendline. This can be done on a lower timeframe. For example, we’ll highlight the downtrend forming on the hourly which represents the four-hour retracement phase. If this trendline resistance were to break, we can use a stop order to buy the breakout move.
If we get the entry here, that would be great because we’ll have a high risk-reward ratio trade. If the market can break and close above, then you could look to buy the breakout candlestick, just place your stop losses below the swing low. At this moment, this low would be your buy stop order.
If you’re new to trading, it can be quite overwhelming. But fear not, you can test the two ways you can enter the EUR/NZD market by opening a demo account. When you’re ready to trade live, our customer support team will be there to assist in your transition.