EUR/USD Trade Idea: Fade the Rally Strategy

The EUR/USD futures market is showing persistent bearish pressure as it trades close 1.03305as this EURUSD analysis shows, with key resistance levels above and bearish momentum evident in long-term performance. This creates an opportunity to fade any potential upside into key resistance zones for a short trade. Below is a detailed trade setup with entry, stop loss and profit targets.

Trade Setup: Short the Rally

• Ticket price: 1.03800 (close to area low since Jan 7)
• Stop Loss: 1.04180 (just above the January 7 VWAP and the next significant resistance level)
• Profit Objectives:
  • First target: 1.03150 (Area Low as of January 3rd)
  • Final target: 1.02835 (Checkpoint from January 1st)

Trade rationale

1. Key resistance levels above:
   The zone between 1.03800–1.04180 serves as a significant area of ​​resistance due to:

   • The Low Area Value (VAL) from January 7 in 1.03800which is consistent with historical volume and liquidity clusters.
   • The VWAP as of January 7 at 1.04180marking the upper limit of the resistance zone.

   A rally in this zone is likely to attract sellers, making it a favorable entry point for a short position.

2. Bearish momentum:
   The inability of the euro to close above the 20 EMA in multiple attempts reinforces the bearish bias. Any rise into the resistance zone is expected to be corrective, not a reversal.

3. Risk mitigation through partial profit:
   Taking partial profits on 1.03150 allows traders to mitigate risk while targeting the next key support level 1.02835 for the rest of the position. This approach balances short-term gains with the potential for a bigger move.

4. Dynamic stop setting:
   Once the price reaches the first profit target (1.03150), move the stop loss to entry price (1.03800) to eliminate risk and ensure profit.

Execution plan

1. Follow the price action near 1.03800:
   Wait for the price to rise by 1.03800ensuring that it struggles to break through the resistance zone. Signs of hesitation or declining bullish momentum (eg lower Delta or high selling volume) will confirm an entry.

2. Enter Short at 1.03800:
   Start a short position at or near this level, ensuring a stop loss at 1.04180 to take into account potential volatility.

3. Take partial profit at 1.03150:
   Close 50% of the position at 1.03150 to lock in profits as the price reaches the first major support.

4. Target final profit at 1.02835:
   Hold the remaining position for more movement 1.02835key liquidity zone and historical POC.

5. Set Stop Loss:
   After the first target is reached, move the stop loss to the entry price (1.03800) to ensure risk-free trading.

Risk and reward analysis

• Risk: ~38 pips (from 1.03800 to 1.04180)
• Reward (Objective 1): ~65 pips (from 1.03800 to 1.03150)
• Reward (Objective 2): ~115 pips (from 1.03800 to 1.02835)

This results in a favorable risk-reward ratio of 1:1.7 for the first target i 1:3 for the final goal.

This trading idea is for educational purposes and if you trade, it is always at your own risk. Fading a move in trading is a the opposite strategy where you sell on rising prices and buy on falling prices, essentially betting that the current trend will reverse. You anticipate that the market has overreacted and a correction is needed, allowing you to profit from the pullback, even if it’s temporary (part of the reason we take partial profits along the way!).

However, this strategy is not without risk as the trend could continue and lead to losses.

This idea takes advantage of bearish momentum in EUR/USD by fading any gains in the currency 1.03800–1.04180 resistance zone. Using a systematic approach with clear profit targets and dynamically adjusting stop-losses, traders can effectively manage risk while capitalizing on the euro’s bearish trend.

Trade at your own risk and ensure proper position size to maintain discipline and consistency in execution. Visit ForexLive.com for additional reviews.