The Daily Trade – Day 65

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Trade Number 65 – USD/JPY 4-Hour Chart

Hi folks. Today’s “Daily Trade” example comes courtesy of the USD/JPY forex currency pair. It has been a volatile one this year due to all the economic turmoil in Japan as a result of the March earthquake and consequent tsunami. But recently, the pair has been consolidating in a very tight trading range and there have been some good trading opportunities.

 

Figure 1.

In Figure 1, you can see the trading range that I am referring to. Price had been moving toward the upper level of this trading range, which is currently a good place to be looking out for any price action signals.

Figure 2.

 

If you now look at Figure 2, which is the 4-hour chart for the USD/JPY pair, you will see that there was a very swift move up with a very long white candle, followed by a smaller pin bar candle and then a bearish engulfing pattern. The pin bar came right off the upper level of the trading range so in this case, I view the bearish engulfing candle as a valid signal, and a good place to take a short trade with a stop loss just above the high of the move. A risk reward scenario of 1:2 would have been good here – or a target of two times your risk.

 

Figure 3.

Figure 3 shows that this trade would have paid off very nicely, as price moved down very well after the engulfing pattern and would have reached our target of two times or risk for a 2% rise on the bank. If you still aren’t convinced of the benefits of price action trading at key areas of support and resistance, then why not come back tomorrow for another trading example in our “Daily Trade”. See you then.

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