Here is a good technical trade setup that should yield some good number of pips for the discerning trader as we head into the new week. This occurs on the EURUSD hourly chart and the move would probably occur between Monday and Tuesday (April 8 – 9, 2013).
Following from a less than convincing Non-Farm Payrolls report which did not provide any clear-cut trade direction on Friday April 5, 2013, there is a nice technical bearish setup on the hourly chart of the most traded currency in the world. This has setup so nicely that every discerning trader should be in on this trade. Why is this such a good bearish trade setup to start the week with?
The answers lie in the chart which clearly shows the following:
a) There is a rising wedge pattern which is almost nearing completion. This has been a few days in the making.
b) At the close of market on Friday night, the last candlestick happened to be a bearish pinbar which formed at the first resistance pivot point (R1). A look at the 15 minute chart for the EURUSD will show that the highs are gradually getting lower and almost form a descending triangle.
At the moment, the price action of the asset is yet to break below the lower trend line that forms the rising wedge pattern, so it is too early to take the trade. However, the following should be used as a signal to enter short on the EURUSD:
a) Wait for the EURUSD to break below the lower trend line. A true break is made when the asset’s closing price falls below the lower trend line. This has to be at a price level of below 1.2990.
b) At the break of the trend line, watch to see the candlestick pattern that forms. A decidedly bearish candlestick should cause the trader to go short on the open of the next candle.
c) Otherwise, the trader should wait for the asset to attempt to cross over the lower trend line. This trend line should reject this move as it now functions as a resistance point. The trader can then enter short when the price is at this trend line.
This is surely a trade to watch and if there is some fundamental boost to this setup, the short trade should play out as described.