Trade Example – GBP/JPY

Filed under: Learn Forex Trading |

There was a possible price action trade setup on the GBP/JPY pair yesterday. This one was a little more speculative, and I didn’t take it myself. But I did make a note of it and watched how it unfolded.

 

Figure 1.

To begin with, take a look at Figure 1. This is the daily chart for the GBP/JPY pair. As you can see, the pair had been stuck in a trading range, but the momentum is currently to the down side. The 8-day exponential moving average is crossed below the 21-day exponential moving average, and we can visibly see that the pair has been bearish for the past few days. In light of this, if we are going to take a trade, I would rather it was a short trade so that we are not going against this recent momentum.

 

Figure 2.

Figure 2 shows the 1-hour chart for the same GBP/JPY pair. What you can see here is that price retraced back up before stalling at the 150-hour exponential moving average, which is often a good area of support/resistance. Price formed a bearish engulfing pattern at this level. What we could have done here is placed an order to go short either at the break of the low of the bearish candle, or at a 50% retracement of it. Our stop loss would have been placed just a few pips above the high of the bearish candle, with a target of two times our risk.

 

As you can see, this trade would have been successful for a very nice 2% rise on our bank. Unfortunately, I never took this on as trading off of the 1-hour chart can be a little more tricky and unpredictable. On this occasion though, it would have come off rather nicely so perhaps we were being too cautious on this occasion.

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