*Trade set ups will not always appear picture perfect. Learn to adapt with the moving markets.*
In this blog post I am going to show you a long trade I am currently now actively involved in and explain why it was not my preferred trade set up. However, I adapted to the way the markets were forming and entered a very reasonable long position with a good reward:risk ratio by simply looking for new confluences to provide a good entry.
This trade example is on the NZDUSD FX currency pair and is an example of what I consider to be a bullish trend continuation trade. I have been trading the 4hr/daily timeframe on this chart for some time since the bearish trend reversed at the beginning of last month.
If you want to see my original long position entry and technical analysis of this currency pair then check out my previous blog post by clicking on the link or image below.
Trend continuation trades are some of the simplest and easiest to spot. The basic rules are, find a timeframe that is making clear higher highs and higher lows (or the opposite for bearish markets) and then attempt to buy the lows until the trend is exhausted.
Quite often you can find and enter 2 or 3 good positions on a trend if you spot it forming early and get in on the waves that then follow. This forms part of a larger trading theory produced by a man called Ralph Elliot who found that markets tend to move in a continued cycle of wave patterns that contain a set number of waves. If you learn how to identify and count waves accurately then there is a greater chance of being able to trade trends more efficiently.
Let’s look at the daily timeframe chart for NZDUSD and I will talk you through my reasons for wanting to enter another long position.
On the chart above, I have marked on the 2 main points to the trend analysis of this pair on the daily timeframe. The bearish trendline relating to the big bearish move (sell off) that occurred from July – September was broken showing signs of a trend reversal. Then there is the new bullish trendline running along the new higher lows on this current trend.
It is this lower trendline that is where I was looking to buy in and go long on the next bullish wave. The chart below is the 4hr timeframe chart and shows the current bullish trend in more detail.
You can see on the chart that I have drawn the lower bullish trendline using the first low and then the next higher low that formed after the bearish trendline broke. I have then applied the fibonacci retracement tool to this low and the previous market swing highs to produce the potential reversal levels.
I like to layer up confluences and try and trade onside the higher timeframe so a long position at the overlap of the bullish trendline, daily 0.618 fib retracement level and a higher low formed would be a good entry for me. Nice and simple and effective with a potential return of around 6R.
This “buy zone” is shown in the shaded region on the chart above and this is where I was waiting for price to reach before entering a long position. However… price never quite made it to the bullish trendline so I had to adapt my entry criteria and look for different confluences to decide if I was willing to go long or not.
An analysis tool I use quite often but never always show you is the counter trendline (CTL). I use it much in the same way as a normal trendline except that I am explicitly wanting it to be broken in order to then validate the end of the counter trend wave. This then leads in to the continuation and next wave of the trend I am wanting to trade with.
This may seem complicated so I have shown the basic theory in the picture below.
The idea is that the main trend is bullish. This is the trend that has the clear waves that are making higher and highs and higher lows and bouncing off of the blue bullish trendline.
However in between the bullish waves, price makes smaller counter trends which are bearish because price comes back down to the larger trendline. It is possible to trade these counter trends on the lower timeframes but this shows why I always tell you to check the higher timeframe.
By using the counter trendline (CTL) it is possible to see when the counter trend is now reversed and the larger trend can continue in its normal direction. This is then using multiple timeframe analysis to use a trendline break strategy on the lower timeframe counter trend in conjunction with the trend continuation analysis on the higher timeframe.
This is what occurred on the NZDUSD 4hr timeframe chart.
The chart above shows my long position entry after the counter trendline was broken and price had found support on the buy zone I had marked. As I explained in the beginning of this blog post, my ideal entry was at the daily bullish trendline but price hasn’t made it there so I have used the CTL analysis to look for a strong set up away from the daily trendline.
Price formed 3 nice wick rejections of the daily 0.618 fib retracement level and this was actually a slightly higher low than the first rejection of this zone. I placed my stop loss below the daily trendline and buy zone just incase price did spike down to test them.
This is a bullish trend so I am targeting a new higher high. I use the fibonacci extension levels for this but I will monitor price action as it goes and take profit accordingly.
The chart above shows the NZDUSD 4hr timeframe chart as at this morning. The buy zone held strong and priced climbed overnight to make a new 4hr higher high. I am expecting price to now continue to climb from here to make a new daily higher high at the 0.65200 zone.
Price Prediction/Trading Opportunities:
I will be looking to scale in and enter more long positions on this timeframe if price makes pullbacks and forms new higher lows. This is shown on the chart below.
Keep an eye on the chart and use normal trading analysis to see if you can find good reward:risk position entries over the next few days and weeks. There could be opportunities to get involved in this current bullish wave and further increase your returns.
All my technical analysis is done using the TradingView platform. You can get access via the link below.
My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.
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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.