Trade Example – AUD/JPY

Filed under: Learn Forex Trading |

 

I have a trade example for you today that highlights the importance of setting trailing stops. The trade comes on the AUD/JPY forex pair, which is the pair for the Australian dollar and the Japanese yen.

 

Figure 1.

To begin with, take a look at Figure 1. This is the daily chart for the AUD/JPY pair, so every candle represents 24-hours of price action data. As you can see, the chart is visibly moving down from left to right, signalling that the chart is in a bear market. The 8-day exponential moving average is also crossed firmly below the 21-day exponential moving average, which confirms this bearish momentum. In this kind of chart, we should only really be looking to take short trades and hop onto this bearish momentum. Although some professional traders take contrary trades against the trend, this is much more difficult to do.

 

Figure 2.

Figure 2 shows the 1-hour chart for the same AUD/JPY forex currency pair. What this chart shows is that price had moved back up to the 150-hour exponential moving average, before reacting to it and forming a bearish engulfing pattern (I have highlighted this candle in yellow). The 150-hour exponential moving average is often a very significant dynamic level that the market reacts to, so we can use this as a level of support/resistance.

 

We could have put a sell order in here at the break of the low of the bearish candle, with a stop loss just a few pips above the high of the move and a target of two times our risk. We could have also set a trailing stop equal to that of our risk. As you can see, the trailing stop would have been hit – but we would have exited the trade with a slight profit of 0.25% or so. More tomorrow…

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