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Trade example 6

Lesson 76 Module 6

In the previous example, we have covered trading pin bars as signals when it comes to bank breakout

traps during a trending market. In this example we will see how to use the engulfing bar as a bank

breakout trap during a trending market as well. Look at the chart below:

 

As you can see in the GBP JPY H1 chart the market is clearly trending up forming impulsive moves

followed by retracement moves.

 

The false breakout that occurs at the resistance that becomes support indicates the end of the

retracement move, and the beginning of a new impulsive move.

 

So, now we have the following criteria:

 

-A clear uptrend 

 

-A clear resistance that becomes support 

 

-Nice false breakout at the support level (Bank breakout trap)

 

-A good engulfing bar signal 


Now, let’s look at the higher time frame to see if the daily time frame supports our trading decision that

will be taken on an hourly basis. Look at the chart below:

As you can see, the market is trending up on the daily time frame which supports our trading decision on

the hourly.

 

So, the higher time is in line with the trading time frame. We can now move to the most important criteria

which is the risk-to-reward ratio. Look at the chart below:

As you can see by calculating the potential of this trading setup, we can clearly see that the trade

provides us with a 2:1 risk-to-reward ratio, which is very interesting.

 

Right now, everything is alright, we have all the criteria that allow us to  take this trade, and we can take it

 without hesitation. But let’s see if there is a confluent factor that confirms our trading decision. Look at

the chart below:

As you can see by using the Fibonacci retracement, we can clearly see that the bank breakout trap

occurred at the 50 % Fibonacci level which is a strong level that we should take into consideration.

 

This confluence factor gives us more confidence in our trading setup, so to take this trade we simply

place an order at the close of the engulfing, a stop loss below it, and the profit target is the next

resistance level. Look at the chart below:

As you can see in the chart above, we placed an entry at the close of the engulfing bar, a stop loss below

 it, and the profit target was the resistance level. 

 

As you can see, the market did not disappoint us and went directly to the profit target because there are

solid reasons behind our trading decision. You can follow the same steps to trade bank breakout traps 

using a Doji candlestick as a signal as well.

 

 

Pen