Analysis of a Forex Trade

03/19/2009 10:41 am EST

Focus: FOREX

We usually present new trade ideas in these technical features. However, today we will examine a trade that has already completed. The reason we are doing this is because there were very long bars on almost all currency pairs, followed by consolidation within a small range. This rare phenomenon creates an environment in which new high-probability geometric patterns generally do not form for a day or two. Fortunately, our trade is a nice pattern to discuss.

The "After" chart shows that the pair dropped nicely along the projected CD leg. In fact, the pattern completed almost exactly at our projected entry and had excellent overall time symmetry. The pattern also displayed excellent price symmetry as 100% of XA, 161.8% of BC, and the AB=CD were at almost identical levels.

The fireworks for this pattern really started at the entry. As we can see on the "After" chart, there is a very long tail that happened at our entry. This means that the pair rapidly moved down and moved back up just as rapidly. These quick moves are just a part of trading, and it is difficult to avoid all of them. In fact, we were only two pips away from being stopped out. If the pair moved a shade lower, our trade would go from hitting both profit targets to being stopped out. Anything can happen in trading. We simply try to set up trade ideas that provide an edge that will be profitable over the course of many trades.

Before TradeAfter trade

This trade also illustrates the importance of planning our trades ahead of time. If we simply bought at 1.5267, panic could have set in as the pair quickly dropped below our entry. Without our stop planned out ahead of time, we could have easily closed the trade fearing a further drop, only to see the pair rocket up. As it stands, this trade became an easy winner and an excellent example of a pattern that provided clear support.

By Bradley W. Gareiss of GFTForex.com

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