*Simple multi-timeframe trend analysis with multiple scale in possibilities*
I hope you all had a great weekend and if you are in the UK then I hope you made good use of the extra day off! I am back this week with 2 trade breakdown blog posts and a book recommendation as I realised I have not given you a monthly book review for August.
I am currently in no new trades this week as I go on holiday on Saturday, i am simply holding long term long positions on GBPJPY and GBPAUD which you will learn more about in this weeks blog posts.
Let’s get right in to it and I will show you the pre-trade analysis for my initial long position on GBPAUD FX currency pair. As always, you can track the progress of this trade live on the TradingView platform which is the software I use for ALL of my technical analysis. It really is a fantastic bit of kit.
Click on the link below to go and check it out.
As always, I start with a higher timeframe chart to get a picture of what the overall trend is doing to make sure I am on side with it. I used the daily timeframe for GBPAUD this time but you could have used the weekly timeframe chart and established the same results.
I kept it very simply and by just looking and recording the highs and lows that price made over the last 4 months I was able to see that price was beginning to reverse its bearish trend. A higher high was made on the 7th august with price spiking upward and testing the daily 50ema. From here, I could quite easily see that the potential for a higher low to be made next would be a strong possibility and that this would be a good entry point for long positions.
I then dropped down to the 4hr timeframe chart which is shown above. This allowed me to more accurately and easily draw a bearish trendline on the previous lower highs of the bearish trend and look for possible long position entry points.
My first requirement for a long positions after a trendline is broken is to have a key fibonacci retracement level and/or an intraday support zone present. As you can see on the chart above, I applied the fibonacci retracement tool to the most recent swing high and swing low point from the daily trend to see what levels react with the broken trendline and where. This is also a good time to look for previous support/resistance zones and where they align with your other confluences.
On the 4hr chart above, I could see price was now reacting with the previously broken bearish trendline and was approaching the 0.786 fib retracement level which is one of the most prominent levels on the GBPAUD FX currency pair. There was also a clear double bottom forming at the 1.77200 zone which shows support was building here nicely. The multiple 4hr wick rejection candles of this zone also shows buyers supporting price from breaking lower.
TOP TIP: Not all FX currency pairs, indices and commodities react with specific fibonacci retracement levels in the same way. It is important to back test each financial instrument and find out which levels work best for each one.
My first long position was entered at the 1.77500 key level after the 3rd wick rejection of the 1.77200 intraday support zone and broken bearish TL. I had good confidence that the support zone was going to hold after seeing so many rejection candlesticks from.
My stop loss was placed comfortably below the wicks in order to be able to withstand any more retests of this price support zone.
As with most of my trend based trades, I aim to take my first profits at the previous highs and place my final target profit at the -0.27 fibonacci extension level. However, there are exceptions to this rule depending on the momentum present in the trend and how price is moving. To learn more about this, I highly recommend you read my previous blog post on the topic. It can be found by clicking on the link below.
Let’s look at how GBPAUD played out after entering my first long position.
After entry, price began to climb as it bounced off of the intraday support zone at 1.77200. As always, I move my stop loss order to entry price when price has moved 40 pips in to profit to remove all exposure. This gave me confidence to hold the trade when price didn’t actually break the previous highs on the 1hr/4hr chart. Price hit the resistance and then came back down to within 30 pips of my entry price. As I had no exposure I just let the trade run and see what happens next.
GBPAUD then proceeded to make a higher low and then climbed to make new higher highs on the lower timeframe. Looking at the chart it appears price is moving sideways after my long position entry but it did proceed to make higher highs and higher lows as it slowly climbed its way to my profit targets.
It is important to remember that my profit target was set based off of the daily fib levels so it does not matter so much what occurs on the intraday markets. Choppiness is okay so long as price continues to climb in the longer term.
Now, as you all should know by now I am not often happy with just one position if the markets are showing good opportunities for further capitalising on the move I am trading. This GBPAUD trade is no different.
I mention that the 4hr chart did look quite choppy and this is true but by keeping it simple and just looking at the highs and lows of the waves it is clearly making a bullish move. Therefore, I was more than keen to look at scaling in with a second and even third long position when possible.
I did not enter a second long position on the first higher low that was made after my original long position entry for 2 reasons. Firstly, price didn’t break the previous highs so at that point in time I was unsure whether a higher low would definitely be made. Secondly, it was too close to my original entry and the risk:reward was not acceptable for me at this stage.
My favoured scaling in entry came around 5 days later in the following week. As before, I posted this scale in trade opportunity on the TradingView platform for others to see and follow if it aligned with their analysis. You can track the progress of this position by clicking on the link below.
The chart above shows how simple I like to keep my analysis when trading trends. I used a basic trendline drawn across the bottom of the higher lows and applied the fibonacci retracement tool to the last wave to find where the trendline and fib levels overlapped. In this case I found the 0.618 level and the trendline overlapped nicely around the 1.78500 level. This was where I set my long position buy limit order.
GBPAUD is quite a “pip heavy” FX currency pair so my normal 40 pip stop loss tends to be too aggressive on this pair. I usually double it to 75/80 pips to be conservative and this is okay because the potential profit for trades is also “pip heavy” so the reward:risk ratio is maintained at suitable levels.
As you can see from the chart above, even with a stop loss of 75 pips, by having my target profit at the higher timeframe target (same target as long position 1) this scale in position has a potential return of over 7R!
This is a top tip for any of you who is looking to start scaling in on trades. Try to keep your profit targets aligned with the original entry and the higher timeframe, this should dramatically improve your overall profitability in the long term.
Let’s look at how the trade played out after the second long position was entered.
Price continued its bullish trend with the higher lows and then higher highs before strong bullish momentum came into play. Price exploded out of its smaller bullish trend channel and new highs were made around 50 pips short of my final profit target.
I managed to close out most of my long positions at the 1.82250 region for a return of just under 12R and I am holding a small portion until my final higher timeframe profit target is reached.
So there we have it, that’s my trade breakdown for my long trade on the GBPAUD FX currency pair. The main thing I want you to learn from this is that as always, the key is to keep it simple. Use basic tools and your knowledge of how trends work to pick high probability entries with good reward:risk ratios.
Find the trend, be patient and buy the lows. If it’s a bearish trend then do the opposite.
Use the trendline tool, fibonacci retracement tool, EMA’s if you have to and of course… use your brain! 🙂 It is the best tool for trading.
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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.