Some of my best trades lately have been off the longer-term charts - well, longer term for me. That means the 4hr or the daily charts. For some of you, the 4 hour charts might seem like short-term. But for me - that’s super long - I’m usually actively trading from the 1 minute charts!
First, we’ll take a look at a currency trade, and then I want to show you how I set up a trade on a stock I’ve been watching.
First, the Currency Trade:
Ok. This is the EUR/GBP, 4 hour chart - and I love the trade that’s setting up right now:
I really love this trade, so I want to walk you through, in just a few short moments, how I've constructed this trade and put it together and exactly what I'm gonna do.
I've got my phone in my hand, while I’m writing this - and I’ll drop an image inside this article to show you the trade I take. I think it’s important to show the trade - not just the charts - but the actual trade I take in my own account.
All right, so here we are on the four hour chart. Some of my best trades recently have come from this time frame chart. I think it’s because it makes me think about the bigger picture. I’m more patient. And I need to learn patience. Ha!
For example, here’s a recent trade I took on the CHF/JPY:
I sold near the top. Well, I got lucky - usually I get in way too early. I jump the gun. But in the case of the CHF/JPY above, I waited. And waited. And finally I took the trade when the bearish divergence showed up at the top of the chart. That’s bearish “Knoxville Divergence.” I’ll give you a link to download the indicator for free later on. But for now, just know that when I see that bearish divergence - I want to get in on a trade.
Ok. Back to the EUR/GBP.
I have two bullish Knoxville Divergences, one at point #1, and one at point #2:
Generally, I'd like to see another bullish divergence. One, two, three. That’s the magic number for me.
Oftentimes the first Knoxville Divergence and the second Knoxville Divergence don't actually work out very nicely, but the third one is the one that precedes a massive change in trend. But we’ve got two. That’s good enough for me right now.
It’s good enough for me right now because we’ve also got the RSI in super way oversold territory. I’ve highlighted that area with the number 3 in the chart below:
I like that deeply oversold RSI very much. Now, for some people, an oversold RSI is an indication that the trend will continue, not reverse. But for me, with the RSI oversold already for more than 72 hours on this chart - that is an indication to me that the currency pair wants to (and needs to) reverse back up.
We've also got a weekly pivot above - that’s the green horizontal level above price. I love that this weekly pivot hasn’t yet been hit. If you’ve got a chart - for any financial instrument, mind you - and the weekly pivot hasn’t
been hit by Wednesday of the current week - then you might have a great opportunity to set up a trade back to the weekly pivot.
That’s exactly what I’m doing here.
What’s more - we have a monthly pivot above price. I’ve got another chart for you to show you that level (it’s purple):
Those pivot levels act like magnets. Price doesn’t necessarily need to get all the way up to the monthly pivot. But halfway? It wants to get there. And yes, I know that a currency pair can’t want to do anything, haha, but I still really like the term.
Last of all, I like to, in these instances, put a Fib Retracement on the chart:
And look at that, the 38% retracement matches up somewhat perfectly with the weekly pivot.
So - to recap:
1. I’ve got some nice bullish divergence.
2. I’ve got some nice super oversold-ness on the RSI (set to 21, by the way).
3. I’ve got a beautiful weekly and a lovely monthly pivot above price (and these are going to act like magnets if price can start to rise).
Here’s a screenshot from my phone of the trade:
I bought the EUR/GBP and I'm going to put a profit target just below the 38% retracement at .8820.
Now, you might want to know how to set up a trade like this on a stock.
Well, I’ve got you covered:
How I Set Up a Stock Trade from the 4 Hour Chart:
I’m looking at SFIX:
Now, I love this company. I’m a customer. I didn’t plan the trade that way (sorry, Peter Lynch). I was scanning for stocks with low debt, and good earnings, and this is one that I found. And I just happened to love this company and be a happy customer.
The stock has gotten crushed recently. There’s some kind of investigation going on about the directors of the company possibly breaching fiduciary duties. That’s the kind of bad news that I love. It’s the kind of thing that causes a short term panic in a stock that has lots of long-term upside potential.
And as you can see, we’ve got a bullish Knoxville Divergence on the chart.
This is a great combination so far: A company I love, and it just went on sale.
Not only that - but I’ve got a weekly pivot above price. That’s the green horizontal level on the chart.
I can’t ask for more than that.
So I bought the stock:
And guess what? The 38% retracement level lines up nicely with the weekly pivot (again). This happens all the time.
So I’ve got a great profit target at $32 - just below the weekly pivot and the fib level.
Wrapping Everything Up
So that’s how I plan longer-term trades. I do this every day. Well, almost every day.
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If you’d like to stay in touch with me - or ask me about the trade - or anything else - you can hit me up anytime on Twitter @robbooker.
And if you’d like the Knoxville Divergence indicator for you charts, you can grab it for free by clicking on the button below:
Author: Rob Booker, Founder
Services Offered: Trade Alerts, Robots, Trading Indicators, Podcast, Trading Rooms
Markets Covered: Forex, Futures, Stocks, Cryptocurrencies
Rob currently hosts of The Trader’s Podcast (available on iTunes) and is the author of the book “Adventures of a Currency Trader: A Fable about Trading, Courage, and Doing the Right Thing.“