*A review of a short duration, momentum based trade on the CADJPY FX currency pair*
In this blog post I am going to talk you through the market theory, pre-trade analysis and trade management of my most recent trade on the financial markets. This was another quick daily/intraday type trade on the lower timeframes to take advantage of the daily selling momentum present in the markets at the time.
If you haven’t ready my last blog post on trading lower timeframe moves, which can prove to be very successful when the markets are volatile, then please click on the link below to read it now.
Why is momentum good for trading?
I believe momentum in the markets is important for all types of trading. If the financial markets aren’t moving then you can’t make money from the change in capital value of the assets/securities you are buying and selling.
There is nothing worse than entering a trade position on a financial instrument that goes on to spend days or weeks doing nothing and simply oscillating around your entry price. If you are lucky then you may be in a positive carry position that is slowly bringing in a profit from interest charges/lending fees but if you are not that fortunate then trading costs can soon build up rapidly.
The best trade entries are those that get moving right away and consist of little drawdown. Positive carry FX trades are becoming increasingly harder to find now global interest rates are all near zero or negative. It is therefore more important than ever to avoid flat markets and minimise your trade duration.
Important! Momentum is not the same as volatility. I look to trade strong directional momentum in the markets, not highly volatile choppy markets.
The trade I am going to show you in this blog post is a short position on the CADJPY FX currency pair that was entered in order to take advantage of strong intraday selling momentum.
As always, you can track the progress of this trade live on the TradingView platform by clicking on the link below. I use the TradingView platform for all of my technical analysis and charting and it really is a fantastic piece of software.
The chart above shows the 1hr timeframe chart prior to the entry of my short position. This trade was a short duration play on daily selling momentum, there was no need for me to analyse the financial instrument on a timeframe higher than the 1 hour because I did not intend to hold the trade for any prolonged period of time.
The 3 main points of analysis are shown on the chart. The first is the lower high that formed prior to the break of the bullish trendline. This gave me confidence that CADJPY had now found some resistance at these levels and a sell-off is likely to happen next.
The lower low formed after the break of the trendline and this only increased my bias that the next move would be bearish. The break of the trendline and bearish move prior to the lower low forming was done with strong momentum and this is shown by the 7 consecutive bearish hourly candle closures and price falling over 100 pips in less than half a day.
This is the momentum I was looking to take advantage of!
The chart above shows the 15 minute timeframe which is what I used for my short position entry. After the initial sell-off and break of the bullish trendline price began to consolidate and the momentum paused. This is when I entered my short position after multiple wick rejections of the previous support/resistance zone (coloured box) and the 0.382 fibonacci retracement level. Also in this area was the 15 minute 50 EMA which was acting as a dynamic resistance for price since it was broken and being retested.
Therefore at the point I entered this short trade I had 3 points of analysis on the 1hr timeframe chart and 4 points of analysis on the 15 minute timeframe chart. This was more than enough for me to enter a trade position with confidence.
The chart above shows the following 7 hours of price action after my short position entry. As you can see, there were a few more retests and rejections of the resistance zone at 77.500 before the bearish selling momentum continued once more.
My initial profit target was set at 76.380 which would have been a good 108 pip move from my entry point. However, I did not manage to hold this trade until the finally profit target.
I took my first profits on the break below the -0.272 fibonacci extension level at around 2.5R. This was when I began to see the selling moment reduce once more and I was keen to lock in some profits because I did not want to hold this trade across the weekend market close. I then almost immediately saw a larger bullish engulfing candle closure on the 15 minute timeframe where price closed back above the -0.272 fib extension level. At the time, this looked like a daily market bottom was forming and support being found so I decided to close out the remainder of my position. This turned out to be correct.
The chart above shows what happened after I exited the trade. Price actually rallied through the rest of the afternoon and climbed back to my original short position entry price. This was always going to be a quick day trade taking advantage of short term momentum, I did not want to hold this trade over the weekend because the risk of a market gap was too great.
As you can see, there was market price gap on Sunday night and although this was a gap down (in favour of my original trade), it could have quite easily been a gap up and this winning trade would have become a losing trade.
What I want to teach you is that if you look for momentum in the markets then you can spend a lot less time waiting and more time trading. Trade positions that aren’t moving are not useful, much like money sat in cash is not useful thanks to inflation.
Look for markets that are moving and get involved. This trade example is a very good one because it took approximately only 1 hour before momentum returned to the markets and the short position became profitable
The analysis in this trade is actually based on one of the THREE trading strategies that are included in my Mastering The Markets – Retail Trading Course.
If you would like to learn more then please click on the image below
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.
FTMO Trader Funding Programme.
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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.