As is generally the case with the best forex trade set-ups we have traded over the years, we have often found that there is no correlation between the asset class and the trading outcome.
This is why we always trade the currency pair or asset class according to the story the chart tells us rather than what the asset class actually is. The currency pair may not be the most commonly traded or talked about.
But the trend-based sell opportunity we had for USDNOK was no exception to the rule and in this article: How to Trade USDNOK, we will show you exactly what we did. As with any profitable trading strategy, we had our trading plan’s rules for the entry, trade management criteria and exiting from the trade.
Let us rewind to February 2018, when we identified an opportunity to sell the pullback on USDNOK. This specific trading opportunity would allow us to use our bread and butter strategy for trending markets.
Based on this trading strategy’s rules for entry, we had a good looking trade idea. On the 9th February, a bearish pin-bar reversal closed on the daily timeframe after six days’ retracement in a down-trend. We could objectively tell we were in a downtrend thanks to the order, angle and separation of the moving averages we use. After the pullback, we could essentially “sell the rally” in a downtrend and use the bearish pin-bar reversal (also known as a high test bar) as a very powerful sell signal to enter the trade. The bearish pin-bar reversal gave us our final confirmation we needed to qualify a sell.
But this was not just any old pin-bar reversal. The context of the market in relation to the price action on the daily chart gave us multiple reasons to sell. Why? Well over the six days of retracement, price retraced to a very important “sell zone”, where there was an overlap of technical levels and confluences which favoured our sell direction. The more clues we have favouring our sell bias, the better!
In the case of trading USDNOK, not only was this daily pin bar reversal rejecting a technical horizontal level at 8.0000 (also a key psychological number), it also rejected a Fibonacci cluster. A Fibonacci cluster is an over-lap of Fibonacci numbers when taken from different key turning points in the market. In the case of trading the USDNOK set-up, we had an overlap between the 50% Fibonacci Retracement level (taken from the last high at 8.400 in December 2017) and the 0.382 Fibonacci Retracement level (taken from the multi-year high at 8.7000 in May 2017).
What is more, the bearish pin signal bar was rejecting a previously tested level of support now as a level of resistance. After analysing the chart, we saw that if we targeted the previous swing low (7.6470), the reward to risk was a 2:1. Not bad at all! . As we had four reasons to sell this USDNOK trade set-up, we placed our sell orders with our best broker with our entry below the low of the bearish pin bar reversal, with our protective stop loss above the high. We then sat back to let Mr. Market do its thing! Suffice to say, this is the point where we set and forget!
As this trade set-up occurred on the daily chart, we also managed the trade on the daily timeframe. After employing our money management rules, we placed our sell orders on the evening on the 9th February. Our trade was then triggered by the market two days after. After the 13th February, it was confirmed that the market’s momentum was to the downside. This was just as expected. With trend-based set-ups, expect the momentum to be in the direction of the underlying trend.
Bearing this in mind, we anticipated a faster trade outcome compared to the case of trading a forex reversal. Our trade management rules for the forex trend strategy we used to trade USDRUB means that we trailed our protective stop-loss above the high of every second seller bar. We did this twice as we had four consecutive seller days. Managing our trade using our trade management strategy meant we could simultaneously lock-in profit while giving the market enough room “breathe”. On the 16th February a bullish pin bar reversal was the start of the trade going “the other way”…and it did. On the 19th February, we were out for a 1:1 trade outcome. Seller momentum did not quite have the legs to hit our profit target. However, had we not employed an effective trade management plan for any and every eventuality, we would have been left with zilch!
Even though the market gave us half the profit that we has considered to have been reasonably possible, this was a very positive trading outcome. We had traded a forex set-up with positive reward/risk, followed our rules for entry, managed the trade according to our rules to entry and made a profit.
Don’t forget too, that this bearish set-up made us a 2% return on our capital and only took us Lazy Traders about 3 minutes to spot and trade, 2 minutes to manage. Most of what we consider to be “work” work was spent waiting… and but more to the point, doing infinitely more fun things than being chained to the desk!
So, now you know how to trade USDNOK. As you continue your trading journey with us, it will not take you long to discover that we would trade a forex buy set-up on USDRUB no differently than if we saw buy opportunity on Crude Oil, USDZAR Gold… or any equity! You can apply our universal trading strategies on all asset classes!
That’s Lazy Trading! We like keep our trading as easy, simple and straightforward as possible to reap maximum rewards from spending as little time spent glued to the charts. There are many more fun things to do in life, right?