The Gift setup is one of the most popular and effective patterns for traders who operate trends. The term “Gift” is quite apt, as this pattern offers excellent entry opportunities in trends with a good risk-reward ratio. In this article, we will explore the Gift setup, highlighting important nuances such as context and volume, which are crucial for correctly operating this pattern.

What is the Gift Setup?

The Gift setup manifests when a corrective candle follows a conviction candle, indicating a possible continuation of the current trend. This pattern is ideal for identifying moments to enter an already established trend, taking advantage of the temporary price correction.

How to Identify the Gift Setup

1. Trend Context:

– The first step is to confirm that the asset is in a trend, using indicators such as moving averages. For example, if an asset is above a 20-period moving average and shows a conviction candle (a large upward candle), this suggests an upward trend.

2. Corrective Candle:

– After the conviction candle, the setup looks for a corrective candle with lower volume than the previous upward candles. This candle indicates that the selling was superficial and that the upward trend may continue.

3. Entry:

– The entry is made at the breakout of the corrective candle’s high, with a stop loss placed at the low of the same candle. This provides a favorable risk-reward ratio, as the stop loss is usually small due to the corrective nature of the candle.

Practical Example

To illustrate, let’s consider a scenario on the 5-minute EUR/USD chart, where the Gift setup occurred. Suppose that after a sequence of upward candles indicating an upward trend, a corrective candle with lower volume appeared. The trader would wait for this candle to close and place a buy order slightly above the high of this corrective candle. The stop loss would be placed at the low of the corrective candle.

Important Nuances

– Volume: The volume during the corrective candle should be significantly lower than in the previous candles, confirming that the correction does not have substantial selling strength.
– Distance from Moving Averages: It is preferable that the setup does not occur too far from the moving averages, as the farther the price is stretched, the greater the risk of reversal.
– Candle Shadow: A corrective candle with a small upper shadow (in the case of an upward trend) is ideal, as it indicates less selling pressure.

Conclusion

The Gift setup is a valuable technique for traders looking to capitalize on the continuity of an existing trend. Like any trading strategy, success with the Gift setup depends on disciplined execution and a clear understanding of market conditions. Remember that there are no guarantees in trading and that each setup should be evaluated with caution and within the broader context of the market.

Extra Tip

For those interested in expanding their trading skills, I recommend exploring free educational resources, such as online courses on international investments. These courses can offer valuable insights not just about trading but also about risk management and technical analysis.

Good luck and good trades!