Trade Example – USD/JPY

Filed under: Learn Forex Trading |

I’m going to take you through a very interesting trade setup this morning. It is interesting because it is one of those trades that could have been both profitable or a loser, depending upon how you had approached the entry and exit.

 

Figure 1.

If you first look at Figure 1, you will see the daily chart for the USD/JPY forex currency pair, which is the pair for the United States dollar and the Japanese yen. You will noticed that the chart moves up from left to right, and that the 8-day exponential moving average is crossed firmly above the 21-day exponential moving average, signally that the pair is in a very strong bull trend. In this kind of situation, we should only really be looking to go long and hop on to the prevailing trend.

Figure 2 shows the 1-hour chart for the same USD/JPY pair. I have highlighted a pin bar at an area that has acted as support very recently in the past on two occasions. This would have been a good opportunity to go long. Here are four possible ways that you could have entered this trade, and four possible results.

 

1)    Enter at the break of the pin bar with a stop loss a few pips below the low of the pin bar and a target of two and a half times our risk – loss (-1%)

2)    Enter at the break of the pin bar with a stop loss a few pips below the low of the pin bar, a target of two and a half times our risk, and a trailing stop of one times our risk – loss (-1%)

3)    Enter at a 50% retracement of the pin bar with a stop loss a few pips below the low of the pin bar and a target of two and a half times our risk – loss (-1%)

4)    Enter at a 50% retracement of the pin bar with a stop loss a few pips below the low of the pin bar, a target of two and a half times our risk, and a trailing stop of one times our risk – Profit (+1%)

 

As you can see, our current method is the only one that would have produces a profitable result. This just goes to show the value of having a trailing stop.

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