Trade Example – USD/JPY

Filed under: Learn Forex Trading |

 

I have another trade example for you today on the USD/JPY pair going back to 2010. This is a contrarian trade, and something that I do not do unless it is a very strong setup. As a rule, I prefer to go with the trend, but if there is a clear setup at an area of support/resistance that is going against the trend, and if it has a good risk-reward scenario, then I do occasionally take them.

 

Figure 1.

Figure 1.

If you take a look at Figure 1, you will see the setup in question. This is the daily chart for the USD/JPY pair. What you can see is that price had been in a nice uptrend, with the 8-day exponential moving average crossed nicely above the 21-day exponential moving average, and the chart visibly moving up from left to right. However, there is a nice area of resistance at the top of the chart (marked with a horizontal red line), and when a very nicely defined bearish pin bar formed right at this level (highlighted in green), this made me sit up and take notice. With a very strong risk-reward setup, I put an order in to go short at a 50% retracement of this pin bar, with a stop loss placed just a few pips above the high of the pin bar (which was important in this case), and no target set at all – intending to manage the trade. What happened next is something that traders dream of…

 

The order was filled (although price came within inches of our stop loss), and then price absolutely capitulated over the next two days. On the second day, there was a long tail on the massive bearish candle, and as a result, I took profits here for a MASSIVE profit of fifteen times the risk! This proved to be the right place to take profits, as price did then start to move up and became very volatile.

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