Trade Example – CAD/JPY

Filed under: Learn Forex Trading |

I have a trade example for you today on the CAD/JPY forex currency pair, which is the pair for the Canadian dollar and the Japanese yen.

 

Figure 1.

To begin with, take a look at Figure 1. This is the daily chart for the CAD/JPY currency pair, so every candle represents one day’s worth of price action data. As you can see, this chart is visibly moving down from left to right and the 8-day exponential moving average is crossed below the 21-day exponential moving average, which all means that the pair is in a bear trend and is carrying a lot of bearish momentum. In this kind of powerful trend, we can put probability on our side by only taking trades in the direction of this trend. But first, we need a price action signal to confirm that the trend will be continuing. A good price action signal to tell us this comes in the form of what we call an inside bar.

 

I have highlighted an inside bar setup on this chart. An inside bar is defined as when a candle has a lower high and a high low than the previous candle. It means that price is getting squeezed and that the market is taking a breather. We could have put an order in here at the break of the low of the mother candle to go short, with a stop loss just a few pips above the high of the mother candle, and with a target of at least two times our risk. As you can see, this trade would have been successful as the trend continued and price moved down. This trade would have got us a very nice 2% rise on our bank at a minimum. Well, that’s it for today – and I’ll be back with more tomorrow.

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