Trade Example – USD/JPY

Filed under: Learn Forex Trading |

I have a trade example for you today on the USD/JPY forex currency pair (the pair for the United States dollar and the Japanese yen). It is a trade that goes back to early 2001, as I am currency testing trading this pair on Forex Tester (www.forextester.com). If you take a look at Figure 1, you will see the trade setup in question.

 

Figure 1.

Figure 1.

What you can see in Figure 1 is that the USD/JPY pair had been in a very obvious bull trend, with the 8-day exponential moving average crossed well above the 21-day exponential moving average. In this kind of powerful trend, it is a good idea to try and hop onboard and ride some of that momentum, and an inside bar setup is a good way to do this.

 

An inside bar is indicative of an area of consolidation. Even in strong trends, markets need to take a breather before the next rally, and an inside bar indicates such a consolidation in the market. Therefore, when an inside bar formed in this trend, I put an order in to go long at the break of the mother candle of the inside bar, with a stop loss placed just a few pips below the low of the mother candle of the inside bar, and no target set at all – intending to manage the trade.

 

Figure 2.

Figure 2.

This order was filled, and price continued to move up for a few bars until there was an upper shadow on a short bullish candle. This indicated that the market was slowing down, and might turn, so I moved my stop loss up to the low of this candle, which was subsequently hit in the next session (see Figure 2). Although this resulted in a profit of only just under that of the risk, it did enable a bite to be taken out of the trend in a relatively low risk way.

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