Trade Breakdown – GBPJPY August 2020

*A review of two different intraday trade positions on the GBPJPY FX currency pair*

Welcome back to the blog. I hope you had a good weekend and if you are from the U.K. I hope you made full use of the long weekend and bank holiday Monday yesterday! Let’s get right in to it and look at a recent TWO FX trades I entered last week.

If you read my blog post that I posted on Friday you will know that as at Friday morning I had only entered 1 trade position which was a short trade position on the GBPJPY FX currency pair and it was unfortunately a losing trade. However, almost immediately after the blog post was published I had seen a very suitable long trade entry on the very same FX currency pair and entered a long trade position.

You can read Fridays blog post by clicking here.

GBPJPY short trade.

GBPJPY 1 hour timeframe chart – short trade entry

This was an intraday pattern and support/resistance zone trade. I shorted GBP after I saw multiple rejections of the 140.00 key price level which had been acting as a resistance for price for around 2 weeks now. There was also an expanding wedge pattern that was forming which you can see drawn on the chart.

My plan was to short GBP down to the next intraday support zone around 138.500 and potentially even lower where the lower wedge trendline was situated. The actual trade entry looked perfectly times because price dropped around 30 pips right after I entered the trade but around 3 hours later GBP gained some serious bullish momentum. The 140.00 price level was broken price went on to climb more than 160 pips through the rest of the day.

GBPJPY 1 hour timeframe chart – after trade stopped out.

Trading using support and resistance price zones is rather quite simple and a lot of technical analysts and technical traders use these. I have spoken about support and resistance a lot in previous blog posts and the main points I would like to reiterate are:

  1. Treat support and resistance as price zones and NOT just a single pip level.
  2. Treat support and resistance like floors and ceilings.

What I mean by floors and ceilings is that once a price resistance zone no longer holds strong and is broken, there is a good chance that it will go on to become a price support zone in future. Much like an elevator going up or down in an apartment building. The floor of apartment 2 is the ceiling of apartment 1. The simple diagram below shows this in action.

If you look at the GBPJP chart from last week you can see that this is exactly what happened after I entered the short trade position. The price resistance zone at 140.00 no longer held strong and price went on to make a new higher high before pulling back and coming back in to the same zone. This should then be treated as a potential support zone.

And this is what I was looking for and what lead to me entering a second GBPJPY trade last week.

GBPJPY long trade.

Unfortunately I did not take a screenshot of the chart screen on my brokerage platform before entering this long trade so I will use my TradingView chart.

GBPJPY 1 hour timeframe chart – long trade entry

I entered the long trade position on the close of the bullish 1hr candle that bounced off of the previous broken price resistance zone at 140.00 which was now to be used as a potential price support zone. Also in this zone is a simple bullish trendline drawn across the two previous higher highs and the 0.786 fibonacci retracement level.

A stop loss of 40 pips left my stop loss outside of the zone to avoid any future wick rejections taking me out of the trade prematurely. I was using the fibonacci retracement and extension tool to not only find support levels at the entry point but also potential resistance for the next higher high of this trend.

GBPJPY 1 hour timeframe chart – long trade nearing take profit level

Price consolidated for a while at the price support zone before beginning to climb. Over the next 2 days GBP gained more momentum and the bullish trend continued as planned and has gone on to reach the take profit level at the -0.27 fibonacci extension level at 142.200 this morning.

I have now closed this long trade position on GBPJPY and will look to see what it does net. I imagine if the bullish momentum continues then buying the next dip will prove profitable once again.

This trade, and all of my trades, have a reward:risk ratio of more than 1:1 which means that a 50% win ratio, like I experienced across these two GJ trades, still means a very profitable outcome. With a stop loss of 40 pips and a target profit of 195 pips, this long trade trade has a reward:risk ratio of almost 5R!

Current thoughts on the Pound.

For some time I have been thinking the Pound should be bearish and not to be bought with any confidence. This is because our central bank (the Bank of England), is currently quanititve easing and printing money to pay for the fiscal stimulus and support being given to combat the coronavirus pandemic. There is also still the issue of Brexit that is yet to be resolved and a deal is yet to be made and typically this has weighed on the GBP in recent years.

However, it is now hard to argue with the technicals that are visible on the chart and with the GBP breaking multiple price resistance zones on charts against multiple other FX currencies, it is hard to ignore. Remember, there is an age old saying in technical trading which is to trade what you see and not what you think.

A strong Pound also tends to mean a weak FTSE which is what is being seen right now. I am short the FTSE100 index and have been for some time now so this is good news for me. The FTSE has now broken below the 6000 level with some momentum and I am confident that it would continue to move lower over the next few weeks. This is shown on the chart below.

FTSE100 index 4 hour timeframe chart – with short trade position

The GBP vs FTSE scenario is also very similar to the current situation in mainland Europe. The recent Euro Dollar strength has been weighing heavily on the Euro Stoxx index which is currently struggling against other stock market indices. The chart below shows this.

Coming up this week.

I a planning on squeezing in 2 more blog posts this week so keep and eye out for that. I plan to write a piece on analysing the technicals and fundamentals of an FX currency pair that I have not traded in a while. I will also do a weekly round up on Friday to discuss all of the trades I might have entered this week and my current open trade positions (including my Tesla put spread options trade).

If you are interested in learning my personal trading strategies, please consider my Mastering The Markets – Retail Trading Course. Head over to my Trading Education page to check out all of my education packages and the deals available.

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.

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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.

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