We are going to demonstrate an example of a trade setup on the H4 chart. The price, after breaches the last week’s low; it consolidates and produces a strong bearish reversal candle. It then heads towards the South with extreme bearish momentum. Let us find out how that happens.
It is an H4 chart. Look at the vertical line on the left. It is the beginning of the week. The chart shows that the price gets trapped within two horizontal levels. The pair is about to finish its trading week. The chart suggests that both the sellers and the buyers are going to keep their eyes on the chart next week to get the breakout and trade.
The pair produces two bullish candles consecutively to start its trading week. However, it produces a bearish engulfing candle and drives the price towards the South. Do you see anything here? Yes, the pair makes a breakout at the last week’s low. It means that the Bear may dominate on the H4 chart. Ideally, traders are to wait for the price to consolidate or make a bullish correction followed by a bearish breakout to go short in the pair.
The price consolidates. It produces some bearish reversal candles such as spinning top, hammer, Doji candle. However, it does not make a breakout at the last swing low. The sellers must wait for an H4 candle to close below consolidation support. Let us wait for more and see what the price does.
The chart produces a bearish engulfing candle closing well below consolidation support. The sellers may trigger a short entry right after the last candle closes. They may set their stop loss above consolidation resistance and set their take profit with 2R. This is the beauty of using weekly high/low and the H4 chart. It offers an excellent reward. Let us now proceed and find out how the entry goes.
The price heads towards the South with good bearish momentum. It produces three bullish inside bars in this move. The last candle comes out as a bullish engulfing candle. The sellers may consider closing their entry and come out with the profit. If we count, we find that the entry offers more than 2R reward. This is what usually happens when the price makes an H4 breakout at the last week’s high/low. Deep consolidation and a strong reversal candle add more fuel to its journey as usual. In our fore coming lessons, we will learn to integrate Fibonacci levels in this strategy to determine our target with better accuracy. Stay tuned.