Looking at recent AUDUSD and EURUSD 1-2-3-4 setups
This post supplements my video on 1-2-3-4
Learning is about understanding. Understanding comes from looking and looking and looking until you recognise the pattern by hard and at night it invades your dreams. That was a stage of my personal development that I went through years ago i.e. I spent every free minute looking at charts until I dreamt about them at night (at that time, no children yet). I know for certain Binni went through this stage before as well and I know some individuals who went through as well. So if you didn’t experience this yet, you have not worked hard enough.
Here is a link to the video that I made on the 1-2-3-4 set up. Below is my explanation of the recent setups seen from AUDUSD and EURUSD.
AUDUSD 1-2-3-4 sell
AUDUSD was first brought up here.
The pair went on to make a bigger 1-2-3-4 setup. Point 4 missed point 2 by 7 pips which shows that horizontal level offered at point 2 was a good resistance. If 7 pips deterred you from selling the pair, then subsequent 1-3 trend line break is a confirmation that this pair is destined for more downside.
Price did a pullback following the break. This pullback came back to test whether 1-3 TL was a resistance. Price action following after confirms AUDUSD’s direction.
One important feature I want to point out is this: at every turning point including 2, 4 and subsequent pullback, we see a sequence of candles – white for ups and black for downs. Since we are looking at short, black must mark price action moving in our favour. If you want to short but you keep seeing a series of white candles, there is no confirmation since price never moved in your favour.
EURUSD 1-2-3-4 sell
EURUSD is a case that clearly had to be triggered by trend line break (see my discussion on 15 July, point 5B). Note however also that once price moved in our favour (to short), EURUSD presented the ideal selling because price was dominated by a series of down (black) candles.
To choose a pair to trade, we look for trend, find out where a good level is and look for the sign that it is a good time to trigger. It is always looking and looking. If we are not sure, we state a hypothesis like ‘I think this may be resistance’ and then we wait and we hope price will come back and give us some evidence. The outcome is either our hypothesis works or it fails or price simply runs away so we just close our eyes and jump. At the end of the day, a good trade is one that has the most number of factors in our favour.