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Reversal Trade

Another trade in the bank after a solid Nonfarm payroll report. The first Friday of every month the US economy reports how the job market looks. This report will dictate how the economy is looking and how price action will be affected for the rest of the week. In this case, the report was slightly average, but the price on the Euro dropped significantly to the south side. When you come into the markets knowing the prices are moving in one direction or the other you need to determine which trade is best for the situation in front you. We were seeking a reversal trade near lows way past support level three. Although the price range on the EURUSD was not that wide, the extended move was pretty significant.

As price moved down after the news report at 8:30 this morning we saw a deep extended move. Price then formed a nice solid wick candle near lows that occurred around October 10th. We waited for price to make an adjustment around this range. Price then came back down to the same wick level after a nice little bounce. The EURUSD formed another wick giving us our entry several minutes later.

We noticed how the consolidation occurred and after an inside bar occurred on the 1 min. chart we took our trade on a break. The trade took off in our direction by almost 10 pips giving us a solid seven pip winner. We did trade the reversal of the trend today, but this was because we are so far extended. Taking put options was very questionable unless price had moved up significantly more. Price is continuing to drop after our trade was complete, but it wasn’t until price had retraced quite a bit before new lows were reached. We Will continue to trade with the trend and look for reversal trades if they show up on our screens.

The image below shows the chart and how we treated it almost to a tee. Price at the beginning of the chart fell off which was the news event that occurred around 8:30 this morning. Price formed the wick candle that we talked about earlier. The EURUSD moved up pretty significantly to the North Side before chopping back down all the way to the lows of the day. The second wick is very visible on the 1 minute chart and once that happened we decided to take our trade. Notice how price consolidated several minutes after that wick. These prices were forming marching candles. We then had that green inside bar get broken and that is where we entered the trade of the day.
Double Wick Reversal
This is one of the setups we look for on a daily basis. Extended moves past a certain support or resistance level will carry out a solid trade if you wait patiently. Price action will dictate what to do going forward and make sure you’re on the right side the market if possible. Any time a set up does occur that shows you a good reversal sign then it’s a good chance that you should take the trade. Just be aware of what’s going on and try to have a couple of things working for you at that specific time. The more in your favor the better chances the trade will work. We will continue our trades next week and we hope you have a great weekend.
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