In today’s lesson, we are going to demonstrate a chart to find out how it offered an entry based on the last trading day’s highest high. To start with, let’s have a look at the chart.
This is an H1-AUDUSD chart. The chart shows that the price action has been bearish for a while. Then, a bullish engulfing to start with, the price starts going towards the North. On its way, it takes pauses but continues to move towards the trend’s direction. Then, it starts having a downward correction. An H1 bullish reversal candle towards would be the signal to go long from here. To sum it up, it could be written like this “Let the price make a move towards a direction; pull back; a reversal candle towards the trend’s direction”.
To find out what happens next, let us look at the chart below.
The resistance level has been marked and this is where the price needs to makes a breakout at. This is not only the highest high of the bullish wave but the highest high of the last trading day’s candle. This is a point to be noted. To trade on the H1 chart, the last trading day’s highest high or lowest low is the level to keep an eye at. The price action shows that the price reacts to the level as it usually does and eventually makes a breakout. An entry may be taken here as well, but that is another ball game. To trade according to today’s lesson, we must wait for a pullback (price correction) after a breakout. Let us find out what does the price do afterwards.
Yes, the price does come back to the breakout level. Moreover, the level is held by the price. This means we are almost ready to go long from here. Just one more thing to get right on the breakout level and that is probably the most important one to trigger an entry. Can you guess what that is? Have a look at the chart below. Now that we have a bullish move followed by a correction, we must wait for an H1 bullish reversal candle to go long.
Here She Comes
Yes, this is the signal candle (Green Arrowed) to trigger the entry that we have been waiting for. Look at the candle. This is one good-looking bullish engulfing candle. The best signal candle that the price action traders always wait for. The “Buy” button shall be pressed right after the candle closes here. It has been mentioned that the signal candle is an important factor. A good signal candle attracts more traders which brings more liquidity. Thus, the price goes towards the trend’s direction in no time. Let us now find out the level of Stop Loss.
Setting Stop Loss
Many traders set Stop Loss just below the signal candle. This is not a bad idea. However, setting stop loss all the way below where the trend starts is a more effective and safer option.
Setting Take Profit
The next obvious question is, where shall we set our Take Profit?
We do not see any resistance level on this chart. Thus, we shall flip over to the H4 chart (we are on the H1 chart now) to find out the next level of resistance.
The resistance level has been found out and marked on the H4 chart. Most probably, the price may go towards all the way to the highest high. However, the marked level is a strong level of resistance and we may just be happy with to set our take profit at that level.
The Bottom Line
To sum up today’s lesson, these are the things to remember
- Obvious H1 trend is to be found out.
- A breakout is to take place at the last trading day’s highest high or lowest low.
- The price is to come back at the breakout level and be held.
- A good-looking H1 engulfing candle is to be produced right at the breakout level (highest high or lowest low of the last trading day’s candle).