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Video Transcript:
Hey everyone, it’s Dale here with a new Trade of the Week video. Today I want to show you a trade that I just closed on NZD/USD. It was a swing trade, so let’s get to it.
What you see before you is the NinjaTrader 8 platform with my custom-made Volume Profile and VWAP indicators. This is a daily chart of NZD/USD. The reason we’re looking at the daily chart is that this was a swing trade, and I do all my swing trading on the daily timeframe.
The trade I want to talk about was a long from this level at 0.5628. By the way, I publish all these levels for members of our trading course, so they were able to trade this alongside me.
Let me start with the reasoning behind this trade.
I need to move the chart a little to the left because I want to focus on this area. This is where price was dropping in a strong downtrend before reversing into a new uptrend. I used the Volume Profile to analyze this area and looked for a significant volume cluster—a place where buyers were building long positions.
That place was here. This volume cluster was especially important because it formed exactly where the trend reversed.
Additionally, it was followed by a rather strong Fair Value Gap starting here. This was the Fair Value Gap. A Fair Value Gap like this adds strength to the level because it shows aggressive buyers building positions before pushing the market higher. I like seeing Fair Value Gaps with almost all my trades.
That was the reasoning behind this level. Then I simply placed a limit order and waited for price to test it for the first time, which it did here. Immediately after the level was hit, price started to react.
Now let me talk about the stop-loss and take-profit placement.
Let’s start with the stop-loss. My number one rule is that the stop must be behind the heavy volume zone. Since this was the heavy volume zone I was trading from, I placed the stop below it. Whenever possible, I also like placing my stop behind a swing point, which in this case was here. So this was my stop.
Now let’s talk about the take-profit.
I like taking profits before the first resistance or barrier standing in the way. The first barrier for this long trade was here because price reacted strongly to this level in the past. It was a support before, and I was afraid it could become resistance after being broken. So that was my first take-profit level.
However, this was only a relatively small barrier. The second take-profit was based on several additional factors.
The second take-profit was based on this volume cluster. By itself, the volume cluster wasn’t an especially strong barrier, but I noticed something important. Earlier, price had moved straight through this heavy volume zone without respecting it. Even though it didn’t react there at the time, I still considered it an important area and had the beginning of that heavy volume zone marked on my chart.
As you can see, that level aligned perfectly with this volume cluster. Because of that, I thought price could react there.
Sometimes when price breaks through an important heavy volume zone, it later reacts to it from the opposite side. That was exactly what I was expecting, so I decided to use this as my second take-profit.
Price may very well continue higher afterward, but I considered this the safest place to lock in profits.
This is how I think about take-profits. I always try to exit before price reaches a barrier that could stop the move. Likewise, I always place my stop behind a barrier because that barrier should prevent price from moving against my trade.
This is how I trade my swing positions. In fact, it’s the same logic I use for my intraday trades as well.
If you’re interested in learning more about Volume Profile trading and getting access to my custom-made indicators, head over to trader-dale.com. Click on “Trading Course and Tools
At the top of the page, you’ll see our Independence Day Sale, which runs until July 10th. During the sale, you can get all of my educational and indicator packs at a discounted price, or scroll down and get all four together in one special bundle.
Thanks for watching the video. I hope you found it useful, and I’ll see you next time.
Until then, happy trading.
