Lets start by look at a scalping trade that I have taken today. It is a trade that was taken near a pivot point and it concerns the euro dollar pair. Lets bring up the charts.
Looking at the 5 minute chart above, you can see that the price is trading near the pivot point level. I usually do not use 5 minute charts when I trade but I sometimes would go down to a lower time frame because it can help you in giving a clearer picture of price behaviour. Do take note that lower time frames below 15 minutes must never be used alone on its own. It must be used together with other bigger time frames, like the 15 minute, 1 hour and so forth. Without the help of bigger time frames, you can easily be caught up with all the confusion and price movements in the lower time frame and end up taking trades that might put you on the wrong side.
What can we learn from the chart above?
The chart is showing us that the price had moved strongly through the pivot point level. In fact there wasn’t any hesitation or resistance at the pivot point level when the price touched the pivot point. The price just went straight thrugh as if the pivot point doesn’t exist. Nevertheless, we see the market giving some respect to the pivot point when the price actually refused to go on up before testing the pivot point and transforming it into a support level.
The price tested the pivot point twice and closed with a higher low. That is actually a buy signal. It shows that the trend is about to ensue. You might say that that price has already moved up so high from 1.308, why should you buy now? Here is a good time to reiterate a point that a trend will not stop just because it has already made the large moves. It can in fact move some more.
Is there another reason why a long trade should be taken here?
To be frank with you, there is one more reason and it is found on the 1 hour timeframe chart. Lets pull up the chart.
The above chart shows us that there is a downtrend line which contains “Magnetic Force” to attract the price to it. Price would usually test trend lines and it would require a great opposing force to push the price back down again. This would usually be in the form of candlesticks with long upper shadows or what others would just call “tails”.
So, based on the above 2 criterias, a buy signal is generated.
Where is the best place to put a limit and stop loss?
Lets say that you have entered at 1.313. We can put a limit at around 1.315 for a potential gain of 20 pips and a stop loss at just below the pivot point at 1.312, a 10 pip loss.
Lets say we have taken this trade and we wait the price to do its thing. As time passes by, you can do other things like listening to some music or watching a short movie on Youtube.
Ok, time have passed and lo and behold, our profit target has been hit!
The above chart says that this have been a profitable trade and with 20 pips in the bag.I hope that you have learned something here from my trades. This is a trade that I have taken and while I was in the trade, I continue to write on this blog. I want to make the posts as close to the real market action as possible.
Wishing you the best in your forex trading!
Singapore Forex Trading Blog