Explained Trade: Megaphone - EUR\USD

in

EUR\USD Megaphone chart pattern

A trade that occurred at the Euro-Dollar Currency Pair, whose basis was the Megaphone Chart Pattern. The Megaphone chart pattern consists of two expanding trendlines which serve as Support and Resistance areas for price. Price bounces from each trendline to the other, until the breakout in one size.

This is a reversal chart pattern which means that breakout is usually in the opposite direction of the price trend prior to the pattern. In this case the previous trend was bearish so an Upward breakout was expected. At 12:00, after 3 bounces from Resistance and 2 bounces from Support level, the Megaphone pattern was confirmed.

At 16:00 price bounced off the Support trendline, creating a Hammer Candlestick Formation. This is a reversal candlestick formation. However, because this is a long trade we waited for extra confirmation - a second candlestick to go above the hammer. The second candle not only broke the high of the Hammer but also created another Candlestick Formation: The Engulfing Pattern. This pattern occurs when a candle engulfs its previous candle, this is a strong reversal formation. Learn about the Engulfing Pattern here.

After the engulfing, a trade was entered at 1.3845, with stop loss 1 pip below the low of the Hammer 1.3831 = 14 pips stop Loss. Target was reached when price hit the Resistance trendline with +145 pips profit.

Result:
+145 pips profit (+10.35% on Equity)