Trade Setups for Corrections

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Video Transcription:

Hello traders, welcome to the newest trading course and the second module technical approach, how to trade the news. In this lesson I’m going to teach you how to trade. The first setup that you are going to be looking for and those are corrective moves after the news is released. Now, on this setup you are going to wait for the first move and the first break outer zone and then you are going to try to enter the market on a correction. To try to profit from the volume that is entering the market. This means that if we have a bearish or negative news we are going to have a bearish pressure or, yes, a bearish move in the market, so we are going to wait for a break to the downside and then a corrective move to the outside to enter and vice versa.

Trading Corrections

Now, let’s go right to the charts and let’s go through today’s events to see if we can actually find an example on a corrective move setup? Okay, so this is the Forex Factory calendar and we’ve had…well, today we’ve had the unemployment claims. These are the initial jobless claims on the United States so we are going to look at price action on…during these announcements. So the first thing we are going to do is we’re going to go to the clock on the economic calendar and we’re going to set it to my empty for platform server time. I’m doing this because it’s going to be easier for me to locate the price action that I’m looking for when I know the exact time that this happened in my platform.

Okay, now the initial jobless claims. Here we go. It was at 2:30 p.m. So let’s go to the platform and let’s find what happened there. Okay, here’s the empty for platform and what we’re going to do is we’re going to look at the move on the Euro-U.S. dollar and on the pound dollar. So first of all, we are going to go to the five minute chart and we’re going to go to 2:30 p.m. today. Okay, now it’s 2:30 p.m. right here. So let me use a horizontal line to locate the actual time. And we’re going to go to the one minute chart. Now, here’s where the initial jobless claim numbers went out, 2:30 p.m. Okay, and as you can see, the first thing we are going to do is we’re going to look at again at the economic calendar to see which direction should we be trading.

All right, so the initial jobless claims, the previous number was 265K. The forecast was a higher number, meaning that a bearish pressure on the U.S. dollar was forecast. But we had a better number, here is 264, which is lower than 265. And of course, you can see it because it is printed in green. So this is going to give us a bullish pressure on the U.S. dollar. So we are going to look to sell the Euro-U.S. dollar. Okay so this is basically how you read the news. It’s easy as that. Okay, so let’s say that we are trading right here. We are going to go first and we are going to locate a few key levels that we’re going to trade from. So we have this first key level of previously tested resistance. Now support, remember that a level is not just a straight line, but it is actually a zone. You can see that the actual zone is this zone right here. We tested this zone. And then we found some buyers and this is our rejection candle that gives us the end of the zone. And, of course we are also going to use the end of this candle. Because we do have some zig-zag action.

Price Action

Well, when we break below this zone you can see that we have a very bullish action, price action. Then, all the way down here we found buyers, okay. Maybe we can get rid of this little one. We found buyers and then we retracted and tested these low again. So what we are going to do is we’re going to use these levels as our trading levels for when we pull back. Now, because we are looking to sell the Euro/U.S. dollar, remember that we are going, we are trying to sell the Euro/U.S. dollar. What we are going to do, first of all, we need a rate below these lows. Okay, now let me move these just around these lows. We need a break below these lows because this is the actual area of support where price is tested right now. So, what we are going to do is we’re going to wait for a break below these lows.

Trading Setups

Then, we are going to look for a correction to the upside. Okay, and right here you can see that we have a correction. A corrective move and then we have a one minute candle that engulfs, one minute bearish candle that engulfs the one minute bullish candle. This is our signal to go short and right here I’m going to put…well, we’re going to go short at market and let me just color it black and just put another design on the horizontal line so that we know that this is our entry. Our stop plus is going to be about this high, about this area of support. And because this area of support is not a straight line, but an actual area we are going to put our stops above the 14,21,5 [SP] area. So that means that we have a nice three almost four pip stop loss. Okay, right now we are trading the news. We have now a break to the downside you can see that we break with this area, which is nice on the actual news. Then we hit our final target. Remember that this is the area where we find heavy buyers and price gained what it lost in the past five candles in only two candles.

So here we had heavy buyers that pushed price up. Here we have a heavy area of support and we are going to take profit at this area and as you can see we start to trade sideways at this area and this means that we made a nice 12 pips with a 4 pip stop loss which means that we took a nice three to one risk to reward ratio trade. So let me just put our exit level right here okay. And as you can see after the news we hit our target and then price started to trade sideways and then it started to move up.


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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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