How to Setup Breakout & Fibonacci FX Trades

The AUDUSD downtrend offers an interesting chart to search for short setups. In fact, price has already approached the 38.2 retracement level, which could easily become a turning spot for downtrend continuation.

Looking at the current 4-hour price action, it becomes clear that several candle sticks were showing struggle at the 38.2 Fibonacci retracement level but bullish engulfing twins could have annulled the bearish signals.

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I will therefore keep a close eye on the upcoming 4-hour candles. Will price show renewed bearish signals or will it keep retracing higher?

In both cases I am specifically looking for shorts only because of the current downtrend (see blue trend line). Here are the two bearish scenarios I am counting with:

  1. A break of the 4-hour candle low (green circle) for a break out trade to lower levels (orange arrow);
  2. A bounce at the Fibonacci confluence of Fib retracement and Fib target:
    1. The 50% Fib retracement and the -27.2 Fib target (red circle);
    2. The 61.8% Fib retracement and the -61.8 Fib target (dark red circle).

In both scenarios it is useful to wait for a candle stick pattern to confirm that price is bouncing at the resistance spot or pushing through the support level. This helpful tactic has a high rate of ensuring a decent entry at the right time.

What is YOUR trading plan for the AUDUSD currency pair?

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The same upside movement could also occur on the NZDUSD. The Kiwi has been in a big downtrend as well but recent choppiness has put bearish ambitions in the freezer.

Looking at the most recent upside momentum (green arrow), the break of the down trend line (blue) and the double bottom (purple circle) at the 61.8 Fibonacci retracement level (light blue), price could be ready for a bullish breakout (blue arrows) above the resistance line (red).

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I am interested in taking a long upon the break of resistance (after candle stick confirmation) and/or taking a short at the Fibonacci targets. There are two valid options for catching the bullish counter trend breakout setup:

  • One is to look for a daily candle pushing through the trend line;
  • The other is to monitor the same bullish breakout but on a lower time frame such as the 4-hour chart.

The advantage of the H4 in this case is the potential for an earlier entry and hence more space to targets as well.

When I zoom in to the 4-hour chart I am able to see both a bull flag and contracting triangle type of chart patterns. The break below support and the break above resistance would indicate the break of the contracting triangle. A break of both the resistance and support levels will be the trigger I am looking for trade setup. Also in this case a strong candle is warranted: close near low or high, sizeable candle and majority of candle outside of trend line.

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Do not be shy and tell us what you think of the above! Are you interested in trading these two pairs? What is YOUR reason for perhaps not trading them?

Let us know down below in the comments section!

Thank you for sharing the post and wish you Happy Hunting!

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  • Chris

    Sure! That is a good idea as well 🙂 It is not an easy balance indeed. I do think that using a confluence of a few tools is often the best.

  • Edith Helwegen

    I’m often struggling with moving the stoploss. In this case I would go beyond 3 fractals on the H4. It feels saver.

  • Chris

    Hi Edih, no prblem! I would go beyond 2 fractals on the 4 hour chart and keep an eye on the daily highs as well. At this moment 0.8455 seems to be the best level I think. Of course, trails always run a risk of a too early exit.

  • Edith Helwegen

    Thanx Chris. It’s the same fib on your H4 chart (yellow/orange) The -0,618 fib is at 0, 81823.

  • Chris

    Hi Edith! Thanks for the question. It is difficult one as I am expecting more USD strength in the next weeks but usually speaking following your trading plan is the best advice. If you do decide to move it, then using a trailing stop loss not take away the risk of losing the trade or locking in profit could be a solution. How far is the -61.8? Not sure which Fib you are using.

  • Edith Helwegen

    I’m in the audusd short-trade since 18 november. My target is 0,83 and that’s the – 0,272 fib level. Am I to greedy when I move my target to the – 0,618 fib level?