Trade Example – CAD/JPY

Filed under: Learn Forex Trading |

I have a trade example for you today on the lesser-popular CAD/JPY forex currency pair, which is the pair for the Canadian dollar and the Japanese yen. To begin with, take a look at Figure 1. This is the daily chart for the CAD/JPY pair, so each candle represents 24-hours of data. What the chart shows is that price had been moving down quite nicely, before making a significant retracement. It seemed that our 8-day and 21-day exponential moving averages were just about to cross back over when a very prominent pin bar formed right at the 50% Fibonacci retracement area. This level was also a previous level of support, so there was a good confluence of signals telling us that price might have trouble breaking through this level.

 

Figure 1.

The close of this pin bar would have been a good time to put an order in to go short at a 50% retracement of the pin bar, with a stop loss just a few pips above the high of the pin bar, and a target of two times our risk. As you can see, this order would have been filled before price capitulated downwards and our target would have been met quite quickly within two days for a very nice 2% rise on our trading capital.

 

If trades come to fruition quite quickly as this one would have, this is the perfect trade as our trading capital is freed up for other trading opportunities. We should never really be exposing our bank by more than 6% at any one time – so this means that we should have a maximum of six trades on at one time if we are risking 1% per trade. This is an added insurance policy for our money management, and one that I urge you to follow.

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