*Updating my technical analysis of the NZDJPY FX currency pair and discussing trading opportunities*
Welcome back to the blog and happy Friday to you all! In this blog post I am going to revisit the NZDJPY FX currency pair on which, last month, I provided you with my full top down technical analysis. Since then price action has progressed and this week I have entered a short trade position.
If you haven’t read my previous blog post where I analysed NZDJPY, you can do so now by clicking on the link below.
Let’s get right in to it and start with the weekly timeframe chart.
The main points of my previous analysis were the following:
- Long term bearish trendline that was still in tacts and acting as resistance for price.
- Bearish EMA alignment.
- Price beginning to form a lower high at these levels.
Since then price has formed what I believe to be a new lower high on this timeframe. Multiple bearish weekly candle closures confirm this for me and price is now pushing to the downside. The bearish trendline was yet to be tested but it is still present incase price does start to push higher once more. The weekly 50EMA has also held strong and price is trading back below this which acts as a “dynamic resistance” for price.
If this lower high holds true then I am looking at trading this next bearish phase of the trend.
Since my last post, NZDJPY has begun to form the start of a bearish trend on the 4hr timeframe chart and this is what interests me the most now. From the highs at 72.00 price then sold off into the EMA’s before consolidating for a number of days. Once this consolidation broke, the new lower low was made last week.
This week saw a nice retracement of around 150+ pips and this is why I think NZDJPY now represents a good intraday trading opportunity. A lower high at this level formed yesterday with price rejecting a previous price support zone (blue line) and the 0.618 fibonacci retracement zone. If this lower high holds strong then I believe the trend will continue downwards and price can quite easily make new lower lows.
This next chart still shows price on the 4hr timeframe but I have added my entry level, stop loss and potential near term price targets.
The 4hr timeframe chart was where my latest trade entry was made. Using the confluences and analysis previously explained, I entered a short trade just below 70.200. I have a very conservative stop loss (65 pips) on this trade because I believe there is a lot of downside potential to be had and there is no need to trade aggressively.
When trading trends, you can use the fibonacci retracement tool to find price reversal zones to enter positions but you can also then use the fibonacci extension levels as potential price targets. The 68.00 level represents a good place to lock in some profits if price does make new lower lows on this intraday trend because it is a nice whole number that coincides with the -0.27 fib extension level.
The key to this trade, and why I like it so much, is that it has the potential to go beyond the intraday trend. Even if you were to close out all of the trade at the first price target you could still net a return of approximately 3.5R but if you use the higher timeframe bias and longer term price targets then the potential return is increased dramatically.
Now let’s go back to the weekly timeframe chart and look at my longer term price targets for NZDJPY.
I have two long term price targets outside of the one shown on the previous 4hr timeframe chart. My first price longer term price target is at 66.500 which is the first major weekly price support zone which held strong back in late 2019. If that price zone is broken to the downside then I cannot see much in the way for support that might stop price from going lower and making it’s way to the yearly lows at 60.00.
Using the price measuring tool I can see that the last significant bearish trend wave that took price from around 73.100 down to 60.00 took around 12 weeks in total. Therefore it is safe to assume that if I am looking for a similar size move in price for this trade then I can expect to wait up to 12 weeks for price to make it’s way down to the final profit target at the yearly lows. It could take longer, it could take less time but by using this method of measuring previous price waves and the momentum, you can set your expectations.
Holding the short trade position that was entered on an intraday trend but using long term profit targets, you can increase the potential return of this trade from 3.5R to more than 15R if price makes its way to the yearly lows at 60.00.
This type of trade shows the whole purpose and main benefit of doing top down analysis and looking at multiple timeframes. I am using a long term, weekly/monthly price bias and then trading the price action on a lower timeframe to get slightly better reward:risk trades. This is quite a necessary skill when trading as retail trader in the markets because you must be willing to look for the larger reward:risk trades in order to lock in those larger returns on your smaller capital.
Trend analysis is a hugely valuable tool. It allows you to get in to trade positions that flow with the market sentiment and this in turn can naturally increase your win rate % and even increase your average return per trade. I often write about trend analysis on my blog and you can read last months trend analysis blog post by clicking on the link below.
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