Trade Example – EUR/JPY

Filed under: Learn Forex Trading |

 

I have a slightly different kind of trade example for you today. To begin with, this setup is on the EUR/JPY forex currency pair, which for those of you that don’t know is the pair for the euro and the Japanese yen. This is one of the minor pairs, but it still has plenty of liquidity, as the forex market is such a vast behemoth.

Picture 1

Figure 1.

To start off with, take a look at Figure 1. This is the 4-hour chart for the EUR/JPY pair.  What you can see here is that there is a significant gap in the market. At the close of the market on Friday, price had been hitting an area of resistance and had failed to break through. However, at the open of the market on Monday, price had gapped through this level and opened much higher. What often happens when the market gaps like this is that the gap itself acts as an area of support/resistance. And given that the bottom edge of this gap was also a previous area of support/resistance, then we could guess that this would act as a good level of support.

 

When price retraced back down to this previous area of support/resistance, a pin bar was formed, rejecting a move further down. What we could have done here was 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 the pin bar, and a target of two times our risk. As you can see, price has since moved up and this target would have been met for a very nice 2% rise on our bank. Well, that’s all that I have for you today, and I’ll be back with yet more forex price action trade examples tomorrow…

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