EUR/USD Day Trade Walkthrough: Identifying High-Probability Trade Setups Using Patterns and Key Levels
Original article by Cory Mitchell, CMT
Source: TradeThatSwing.com
The EUR/USD currency pair is one of the most actively traded forex pairs due to its high liquidity and tight spreads. Day trading this pair requires a strong grasp of price action, pattern recognition, and understanding how to trade around key support and resistance levels. In this in-depth guide, we break down a real trading session on the EUR/USD to show a play-by-play analysis of how to identify high-probability trade opportunities.
Included are detailed insights into trade entries, exits, the rationale behind each decision, and how to adjust your approach based on market behavior. Credit for the original trade example and methodology goes to Cory Mitchell, CMT, from TradeThatSwing.com.
Market Context and Preparation
Before diving into trades for the day, it’s essential to understand the broader context. Cory Mitchell begins by assessing the recent price movements and identifying key decision points from the previous trading sessions.
Key preparation steps included:
– Reviewing the overall trend direction: Is the market making higher highs and higher lows or lower highs and lower lows?
– Identifying key support and resistance levels based on recent price action. These include levels of consolidation, breakout points, and price zones where price frequently reacts.
– Drawing trendlines to identify the general direction and major price channels.
In the example session, the EUR/USD was showing a downward trend during the early part of the London session. Price action reflected lower highs and lower lows, indicating bearish momentum.
Trade Breakdown and Play-by-Play
The following details the trade setups taken during the session, including the pattern recognized, entry points, stop loss placement, and target rationale.
Trade 1: Breakout Failure Short Setup
– Pattern Identification: The market attempted a breakout above a minor resistance level, but quickly reversed, forming what is often called a “breakout failure” or “bull trap.”
– Entry: After the false breakout, a short position was taken as the price broke below the low of the breakout candle.
– Stop Loss: Placed just a few pips above the high of the failed breakout candle.
– Target: Aiming for the nearest support zone below, which was based on a prior swing low.
– Rationale: False breakouts offer high-probability trade setups because trapped buyers tend to reverse their positions, adding momentum in the direction opposite the breakout.
Result: The trade hit its target quickly, as the failed breakout caused significant downward movement.
Trade 2: Pullback to Resistance
– Setup: Price had moved lower, then rebounded into the previously broken support level, now acting as resistance.
– Pattern: A bearish engulfing candlestick pattern formed at the prior support level.
– Entry: Short position entered on confirmation of the bearish engulfing candle.
– Stop Loss: Placed just above the resistance level
– Target: Recent swing low created by the previous trade’s decline.
– Rationale: This was a textbook example of the “support turned resistance” scenario. Price often retests broken support levels before resuming the trend.
Result: Trade worked out, though price hesitated at the entry zone. Patience was essential.
Trade 3: Reversal Attempt Long
– Pattern: As price neared a robust support level, it formed a double bottom pattern with bullish divergence on an intraday oscillator (not mandatory but adds confidence).
– Entry: A long trade was placed after confirmation of the second bottom and a bullish engulfing candle.
– Stop Loss: Below the swing low.
– Target: The mid-range resistance level from earlier in the trading session.
– Rationale: Reversal trades should be viewed cautiously during a trending session, but this setup had clear structure and support for a counter-trend bounce trade.
Result: Price achieved target as anticipated bounce occurred. However, risk management was crucial due to the counter-trend nature
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