Trade Breakdown – NZDJPY Short April ’19

*FX Currency short trade using a simple trendline and Fibonacci set up!*

I am back! Back to work after a long weekend away at a treehouse “hotel” that I highly recommend to you all. The place is magical and perfect for getting away from the normal hectic life. Little to no phone signal, no television and an outdoor jacuzzi and fantastic views… perfect!

The link is below if you want to check them out.

To start the month off well I have entered a rather successful short position on the NZDJPY FX currency pair which is seeing a lot of bearish momentum today. I will use this blog post to breakdown my pre-trade analysis and explain why I have entered the position and where I expect it to go over the next few days & weeks.

Before I start, you can track this trade live via the link below. It will take you to my personal Trading View profile

NZDJPY 4 hour chart
(before position was entered)

This trade is a very simple “trend reversal” entry with a few key confluences providing a very accurate entry. This position also benefits from a good Reward:Risk ratio because of the entry being on the lower high and not just on the break of the trendline marked on the chart.

NZDJPY 4 hour chart
(zoomed in on entry zone)

Firstly we have 2 previous lower highs on the 4hr chart with a lower low formed on the last swing. This is key, because once the lower low was made then the bullish trend (higher highs, higher lows) is confirmed as being reversed. I then use this in conjunction with the break of the bullish trendline I have drawn on the chart to change my bias to bearish and look for potential entries to short this FX currency pair.

I am personally not a fan of just shorting on a break of a trendline or support/resistance level. Firstly, it’s normally a sure fire way of entering short on a low or long on a high which is no good because this leads to a need for large stop losses and positions with poor R:R ratios. It can also lead to being caught by “fake outs” which I will cover in a future blog post.

I also saw that price was definitely being kept down below the 76.500 resistance zone with multiple failed attempts to break above that price level. This added to my bearish bias and in hindsight, that would have been a very good area to enter short positions.

I applied the Fibonacci Retracement tool to the most recent 4hr swing high and swing low to produce potential reversal areas and the 0.618 retracement level intersected the broken trendline perfectly. This meant a retest of the trendline would also mean a test of the Fib 0.618 level which should act as another resistance to keep price down.

Remember, it is much safer to trade with the trend or as others have said “the trend is your friend”. I am not looking to go long on any lows here because the 4hr trend is now bearish in my opinion. The highs and lows confirm this for me.

In regards to a stop loss and profit target, my stop loss is placed above the next Fib retracement level which is the 0.786 and gives me a SL of 48 pips. I am targeting new lows on this pair at 74.00 and then the next key level at 73.00. This would give this trade a R:R ratio of around 6:1 before any scaling in positions.

You can track this trade live on the Trading View platform by clicking the link below:

NZDJPY 4 hour chart
(as at 16:30pm Tuesday 2nd April)

Thanks for reading and I hope you have gotten something from this trade breakdown. Again, the set up is very simple and requires only 2 trading tools… Fibonacci and trendlines. The rest is just common sense and knowing how the financial markets work.

Have a good week and I look forward to bringing you more content through out the next few days!

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