The First
Touch
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
The first touch trade is a trade I use after a very strong move. The First Touch has five
important components, each of these components should be in place for a valid First Touch
Trade.
1. A Very Clear Zone is Present
2. The Market Trades Far Beyond this Zone
3. The Market Comes Back to Touch this Zone
4. The Market Prints a Trigger Candlestick on the First Re-touch
5. The Market Trades Beyond this Trigger Candlestick
I will look at each of these components of the Fist Touch trade, with chart examples.
A Very Clear Zone is Present
Here the NZD/JPY is showing a clear support/resistance zone at 64.70 - there have been
several touches on this zone from below (resistance, indicated by red arrows) and several
touches from above (support, indicated by blue arrows).
Thus, we have the first component - a very clear zone is defined on the chart.
obvious zone. If there are any questions about the clarity of the zone or the clean touches on
the zone, the zone is not good enough for the First Touch trade.
Clarity of the Zone
A clean zone will have several touches that make identifying the zone easy. The line chart
should confirm these zones.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
Clean Touches
The Market Trades Far Beyond the Zone
The defining feature of the First Touch trade is that the market blasts through the zone. The
move is often violent and punctuated by large candlesticks. The market completely falls
through the 64.70 zone on the daily NZD/JPY chart.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
The Market Comes Back to Touch the Zone
A Trigger Candlestick on the First Re-touch
Once the market returns to the zone, a trigger candle is needed to initiate the trade. The daily
NZD/JPY prints a very nice long-tailed candlestick on the zone, the first time the market has
reached this price level since falling through the zone. The important thing about the trigger
candle is that it is a bearish candle (for sell trades, for those buy setups the candle should
obviously be a bullish candle). This candle is clearly a bearish candle.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
The Market Trades Beyond the Trigger Candlestick
The entry for the trade is 5 pips lower than the low of the trigger candlestick. Using a sell
stop below the low of the trigger candle ensures that the market must trade in the expected
direction before the trade is initiated.
In this case, the candle after the trigger candle pushes through the sell price and the trade is
triggered.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
Exiting the First Touch Trade
Many different exits may be applied to the First Touch trade, but one simple exit is to target
the nearest clump of candlestick lows for a sell trade (obviously, for buy trades a group of
candlestick highs will work as a target). In this example the market reaches the target in 8
candles, for an overall profit of 382 pips.
Another Example
A new market example may best illustrate the other type of First Touch trade (a buy trade).
For this trade we will take a look at the EUR/USD 4-hour chart.
A Very Clear Zone is Present
The zone at 1.4023 on the 4-hour EUR/USD chart is clear. There have been three recent
touches as resistance on this zone. The red arrows mark these touches.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
Clarity of the Zone
Clean Touches
The touches on the 1.4023 zone are very clean. “Clean” touches are those that respect the
zone.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
The Market Trades Far Beyond the Zone
The defining feature of the First Touch trade is that the market blasts through the zone. The
move is often violent and punctuated by large candlesticks. The market completely jumps
beyond the 1.4023 zone on the 4-hour EUR/USD chart.
The Market Comes Back to Touch the Zone
After the market traded over 200 pips above the zone at 1.4023, the market starts to get
weak. A few close misses suggests that the market is ready to touch the 1.4023 zone.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
A Trigger Candlestick on the First Re-touch
Note that while many traders may consider the long-tailed candle on the zone a trigger
candle, other traders may not have confidence in this candlestick, and may wait for a
stronger bullish candle such as the candle some traders may decide to wait until the next
candle prints - as this candle is more clearly a bearish candle, with a close near the low of the
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
The Market Trades Beyond the Trigger Candlestick
The entry for the trade is 5 pips higher than the high of the trigger candlestick. Using a buy
stop for this trade entry means the market has to first trade in the expected direction before
the trade is triggered.
Here on the EUR/USD 4-hour chart, the candle after the trigger candle trades higher than
the buy price and the trade is triggered.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can
