For this example I will show a current AUDUSD short trade from today. It is one of my favorite techniques with a very high rate of success.
I begin by watching for candle formations on the daily time frame. Any time frame can be used depending on how long you wish to hold the position and the amount of gains vs stop loss you are willing to risk for the position. Obviously if you were to use this system on a weekly or monthly chart – your stop loss would have to be wider and your profit targets more substantial.
The charts shown are stripped down with no fibs, moving averages or trendlines and will concentrate purely on candle formations.
The first chart below shows the AUDUSD daily. After a very impressive rip higher the price action formed a Dragonfly doji followed by a bearish lower (black) candle. Dragonfly dojis often appear near the top or bottoms of trends and can be an indication of a change in sentiment, or a weakening in momentum. — I used the doji and the bear candle to draw my tradable range (magenta lines) at the top and bottom of the recent price action. – Please click charts to enlarge –
AUDUSD-Daily
Once we are happy with our set up and our trade range has been drawn, we can switch the time frame. For this example I have gone straight to the hourly chart,.
Now we have identified a tradable candle structure on the daily we can watch the hourly candles for further bearish clues – This came in a bearish engulfing candle. You can enter a short position at the end of the hour once the candle is confirmed, or wait for the following hourly candle to retrace upwards a little in order to try and gain a better price.
A technique I often use is to wait for a small retrace halfway up the bullish’bearish engulfing candle known as selling/buying the belly. In this example the price did rise to the belly (red line) and this was my short entry.
Here we have a choice….. We can either set our stop loss at the top of the trend (higher magenta line) or alternatively chose a very tight stop at the top of the last hourly swing high (green line).
AUDUSD-H1
As you can see by the updated (live) screenshot below this is working out to be a fine trade (free trade now) that offered excellent risk reward from the outset .
AUDUSD-H1 live chart
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Great educational and proven money making strategy HD ! One for the trading books ! I’m equally short smalls AUDUSD ahead of the 0.7880/00 resistance and added AUDJPY short on BOJ’s scaling back of JGB buying.
Ditto mate… The AUDJPY also gave topping clues earlier today and I opened a short myself.
Turning into a good start to the year 🙂
More gold from China. Fantastic post H.
interesting and very similar to the way I trade although I do drill down into the M15 and even M5 charts
Hi John.
indeed…. whatever floats your boat mate. As long as it gets the desired results on a constant basis.
I tend not to look at anything lower than an H1 …Just a personal preference as it cuts out some of the ‘noise’ on the charts.
Plenty more examples of decent set-ups that I use to come 🙂
I look forward to more of your set-ups – its great to learn the outline of how others trade even though we all have to develop our own way – but its good to find a kindred spirit
Good info mate. I like it on the daily as it suits my line of work.
Work ?……Didn’t know gigolo wine taster was a job description these days -)
Lavelllllly DUBS!!!!!
wow, good post. Thanks Dubs
As usual, just brilliant! Thanks for sharing HD. ‘Dragonfly Doji’
On the other hand, it does look like this uptrend could be exhausted soon as 50-EMA on the monthly chart gravitates near 0.7990 handle. Tough wall to ‘crack’ without any fuel from the RBA. https://uploads.disquscdn.com/images/358968ad4a20969eccd0462f67f34704c2c25e68fcc163730faea40aa4239271.png
“selling/buying the belly” does it apply to pin/hammer?