Trade Example – AUD/JPY

Filed under: Learn Forex Trading |

There was a very nice contrarian trade setup on the AUD/JPY pair that we missed a couple of days ago. This is the pair for the Australian dollar and the Japanese yen, and you can see the support and resistance levels for this setup in Figure 1.

 

Figure 1.

Figure 1 shows the daily chart for the AUD/JPY pair. What you can see here, is that price has been respecting a very strong level of support/resistance (marked with a green band). This level first acted as resistance, and has since become a very strong support level in the market. So, when price once again came down to this level, we should have been on the lookout for any price action signals (what can I say – it has been a busy week!).

 

Figure 2.

Figure 2 shows that price formed a very nicely defined pin bar on the daily chart right at this level. What we could have done here is to put an order in to go long at a 50% retracement of the pin bar, with a stop loss placed just a few pips below the low of this move, and with a target set of two times our risk. As you can see, had we put this order in, we would have had a very quick and very nice 2% rise on our bank (with a 1% risk level), as price has subsequently moved up very nicely. Although this is technically a contrarian trade because the 8-day exponential moving average is crossed below the 21-day exponential moving average, the strong level of support/resistance was perhaps enough to have given us a market edge and justify a long trade here. Well, that is all that I have for you today – and I’ll be back on Monday when the markets are open for yet another forex price action trade example. Until then – have a great weekend.

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