Trade Breakdown – CADJPY Short October ’19

*High momentum intraday short position on the CADJPY FX currency pair*

In this blog post I am going to show you my most recent trade position on the CADJPY FX currency pair. I will explain why I took the position, how it played out and then finally, what I expect the price of CADJPY to do over the net few days and weeks.

Let’s get right in to it with my pre-trade technical analysis. As always, I use the TradingView platform for all of my technical analysis and charting. It really is one of the best pieces of software on the market. You can get access via the link below.

Trade Strategy Overview:

This intraday short trade position was based on the premise of trading a near term trend reversal. I was looking to capitalise on the pending market momentum that might occur after a number of key market trend indicators were broken. I will explain this in more detail through out this post.

If you would like to learn more about trading trend reversals and trendline breaks then I highly recommend you read my previous blog posts on the topic. They can be found via the links below.

I always try to start with the higher timeframe chart, in this case it was the daily timeframe chart and I do this for 2 main reasons. The first is to make sure I am onside with the higher timeframe momentum. This could be making sure I am trading with the larger trend or looking for key support/resistance zones coming up that could help me with a trend reversal trade. The second is to look at the potential expectancy of the trade. For example, there is no point in shorting on a 1hr pullback if there is a big daily support zone 50 pips below because there is a high probability that your profit will be limited at this level.

Win rate, Expectancy and Reward:Risk ratio’s are all important pieces of data that add up to make your overall profitability.

CADJPY daily timeframe chart

The chart above is annotated with the main points of my pre trade analysis. The trend on this timeframe is bullish and I can see this because of the higher low and higher made on the last daily waves. This is okay, I knew this but I was willing to take the short position at the point because of the reward:risk and the other points of analysis that I will show you later.

The daily candle on the 29th October closed below the 83.250 resistance zone and formed a large bearish engulfing candlestick. This is a sign of bearish momentum and a potential reversal. This is very important because it shows the bullish momentum is slowing here and this will boost the probability of my short trade being a success.

I also use the knowledge of the daily trend being bullish to adjust my expectancy and take note that there is a high probability that the FX pair will make another higher low on this timeframe at some point. I have drawn on a simple bullish trendline, counter trendline and applied the fibonacci retracement tool to produce a profit taking zone at 81.250. I will use this for calculating potential profits.

CADJPY 1 hour timeframe chart

The next timeframe I used for my analysis, and short position entry, was the 1hr timeframe chart. I used this to make on the bullish trendline that price had created on its last leg up on the daily trend. As you can see, on the 29th October, price broke through the bullish trendline and 1hr 50 EMA with strong momentum. Price then paused for a good few hours and began a slow pullback to retest the 1hr 50 EMA and daily pivot zone.

I shorted CADJPY on the close of the bearish 1hr wick rejection of the 1hr 50 EMA. This was a good sign that sellers were still strong and price was just consolidating here before the sell off continued.

The chart below shows my short trade position with stop loss placement.

CADJPY 1 hour timeframe chart
(Short position entry)

I had my stop loss placed at 20 pips above my entry price which left nearly 15 pips of breathing room above the daily pivot level. I think it is important to never be too aggressive. Even if price doesn’t come in to your stop loss area, it is nice to have it and even with a 20 pip stop loss on this trade, the potential return of this one position is over 9.5R.

Let’s look at how the trade played out.

CADJPY 1 hour timeframe chart
(Short position after trade)

As you can see, price did actually pop up in to my stop loss area and retest the daily pivot level as predicted. It then acted as support, the sellers kept price down and another large bearish wick rejection candle formed before the sell off continued.

A huge bearish momentum candle closed in the following hour and price then went on to drop over 120 pips down to the 82.00 support zone. The 2 daily candle closures after my short position entry were both very bearish.

I took 50% of my profits on the close of the second daily candle closure just above the 82.00 price level. I am still wanting price to reach the 81.250 end target profit.

What’s next for CADJPY?

Price is yet to reach my final profit target at the daily trendline and support zone which I have marked on at 81.250. I do think this is still a reasonable target over the next few days and weeks.

Price has made a new 4hr lower low on this sell off and is forming a new 4hr lower low today. The charts below shows my prediction for what CADJPY might do next.

CADJPY 4 hour timeframe chart
(Price action prediction)
CADJPY daily timeframe chart
(Price action prediction)

I want price to find a strong support and reach either the bullish trendline and/or the shaded zone that consists of that and the fibonacci retracement level. This would be a high probability long position entry in my opinion. Not only would you be trading with the daily trendline but you can use a lower timeframe trendline break entry to get involved with a great reward:risk entry.

These are my favourite types of trades to enter because everything is aligned!

Useful Links:

All my technical analysis is done using the TradingView platform. You can get access via the link below.

My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.

DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.

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