Trade Example – EUR/JPY

Filed under: Learn Forex Trading |

 

There was a nice forex price action trade setup on the EUR/JPY currency pair last week, which for those of you that don’t know is the exchange rate between the euro and the Japanese yen.

 

Figure 1.

Take a good look at Figure 1. This is the daily chart for the EUR/JPY pair, which means that every candlestick represents 24-hours worth of price action data. That is a lot of price movement contained within each candlestick, so we should give each and every one of them our utmost attention.

 

There are two candlesticks in particular that stand out on this chart. This is an inside bar setup which I have highlighted at a very strong area of support/resistance. An inside bar is a two-candlestick formation where the second candlestick is completely engulfing by the first. What is happening is that price is stalling and is unable to close below an area that was a previous low in the market. However, there is a lot of good bearish momentum and the 8-day EMA is crossed firmly below the 21-day EMA, telling us that the market is likely to fall further. What we could have done here is to play a breakout of the inside bar formation. Our stop loss would have been a few pips above the high of the mother candle, and our target would have been two times our risk. As you can see, this trade would have been very successful for a 2% rise on our bank.

 

If we had felt that the target was too far away, another option may have been to play the breakout, but this time place our stop loss at a 50% retracement of the mother candle. This would have made our target twice as close; and again, we would have been successful for a 2% rise on our bank.

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