I have yet another forex trade example for you today, and this time the setup is on the EUR/JPY forex currency pair, which is the pair for the euro currency and the Japanese yen.
To begin with, take a look at Figure 1. This is the daily chart for the EUR/JPY pairing, so this means that each candlestick represents one day, or 24 hours worth of price action data. As you can see, the chart is visibly moving down from left to right, which tells us that the market is bearish. The 8-day exponential moving average is also crossed well below the 21-day exponential moving average, which confirms that this is indeed a bear trend. In this kind of bear trend, it is best to only look for price action signals that confirm a bearish move.
In Figure 1, you can also see that a nice pin bar formed and bounced off the 8-day exponential moving average, which is a good bearish signal in itself. However, if you take a look at Figure 2, you will see an even better signal.
Figure 2 is the 1-hour chart for the same EUR/JPY forex pair. The candle that is of most interest here is the one that I have highlighted in yellow. This is a very well defined pin bar in the direction of the bearish trend, and it is also piercing the 150-hour exponential moving average; which is a really great area of support/resistance and it is often well respected. This would have been a good time to put a short order in at a 50% retracement of the pin bar, with a stop loss just few pips above the high of the move and a target of three times our risk. As you can see, this trade would have been successful for a very nice 3% rise on our trading bank. More tomorrow…