Trade Example – GBP/JPY

Filed under: Learn Forex Trading |

I have yet another forex price action trade example for today. This time, the setup comes on the GBP/JPY forex currency pair, and for those of you that are not familiar with these pairs, this is the exchange rate between the British pound and the Japanese yen.

 

Figure 1.

To begin with, I’d like for you to take a look at Figure 1. This is the daily chart for the GBP/JPY pair, and it is the timeframe that we use to assess the dominant trend. This is important because if we trade in the direction of the dominant trend, then we have a much better chance of success: after all… the trend is your friend!

 

Figure 2.

What we can see from Figure 1 is that the chart is visibly and quite obviously moving down from left to right. This tells us that the pair is in a bear trend. We can also see that the 8-day EMA is crossed well below the 21-dy EMA, which confirms that the market is bearish. In this kind of market, we should only be looking for price action signals which confirms this bearish momentum.

Figure 3.

 

Figure 2 shows the 1-hour chart for the same GBP/JPY pair. What you can see here is that price formed a nice level of support/resistance as it consolidated. Once price moved back up to this level and got near the 150-hour EMA, we should have been on the lookout for any confirmation signals. This came in the form of a bearish engulfing pattern (highlighted in yellow). We could have gone short here at a 50% retracement of the bearish candle, with a stop loss just above the high of the move and a target of four times our risk.

 

Figure 3 shows that this trade would have been very successful for a massive 4% rise on our bank. More tomorrow…

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