USDJPY rejection on the Ichimoku cloud
Updated
USDJPY is in a short term downtrend that is highlighted very well by the Ichimoku indicator, with the two fundamental conditions that are in favor of a bearish scenario.
At the moment, we don't really have a concrete reason to open a short position:
1. There's no sign of sellers. Just a few bearish candles, but nothing special. Two weak bearish engulfing patterns and one strong red candle that has been immediately matched by a strong green candle;
2. Chikou span just crossed the price, going above. This is usually a buy signal;
3. Price above the kijun sen;
4. Tenkan sen above the kijun sen
For these reasons, I would like to propose a sell stop entry order, instead of a market order.
Trading a rejection here makes sense because the price is not only approaching the Ichimoku cloud, but also two key-levels. A first key level is shown in red, it is the horizontal line that starts from last important swing high (red arrow). It is obvious that, if the price goes above it, we need to question the existence of a downtrend, since we would have a higher high, that is a characteristic of an uptrend.
Another important level is highlighted in light blue, with the horizontal line showing a recent short-term resistance, with the price clearly struggling to go above it.
So, if from one side, trading a rejection makes sense, from the other side, we also need to wait for a confirmation, since we still have 4 points (mentioned above) that are not clear or not in favor of a short position.
I placed a sell stop entry order at 108.24, waiting for the price to go down, leaving this short term congestion phase.
At 108.24, we will also have the price very close to the blue line, the red line heading down again and the Chikou span about to cross the price from above.
I decided to place the stop loss above the resistance analyzed before, that would also be above the cloud about 20 candles from the current price.
Regarding the take profit, standard measured move with a small discount, that would give a risk to reward ratio that is better than 1:2.
At the moment, we don't really have a concrete reason to open a short position:
1. There's no sign of sellers. Just a few bearish candles, but nothing special. Two weak bearish engulfing patterns and one strong red candle that has been immediately matched by a strong green candle;
2. Chikou span just crossed the price, going above. This is usually a buy signal;
3. Price above the kijun sen;
4. Tenkan sen above the kijun sen
For these reasons, I would like to propose a sell stop entry order, instead of a market order.
Trading a rejection here makes sense because the price is not only approaching the Ichimoku cloud, but also two key-levels. A first key level is shown in red, it is the horizontal line that starts from last important swing high (red arrow). It is obvious that, if the price goes above it, we need to question the existence of a downtrend, since we would have a higher high, that is a characteristic of an uptrend.
Another important level is highlighted in light blue, with the horizontal line showing a recent short-term resistance, with the price clearly struggling to go above it.
So, if from one side, trading a rejection makes sense, from the other side, we also need to wait for a confirmation, since we still have 4 points (mentioned above) that are not clear or not in favor of a short position.
I placed a sell stop entry order at 108.24, waiting for the price to go down, leaving this short term congestion phase.
At 108.24, we will also have the price very close to the blue line, the red line heading down again and the Chikou span about to cross the price from above.
I decided to place the stop loss above the resistance analyzed before, that would also be above the cloud about 20 candles from the current price.
Regarding the take profit, standard measured move with a small discount, that would give a risk to reward ratio that is better than 1:2.
Order cancelled
Trade has been cancelled because it didn't hit our entry price.Many people wonder why some traders use stop entry orders, if that means that you will get a price that is worse than the current one. I think that this potential trade explains it perfectly. We were using it to wait for a confirmation that sellers were strong. We had a good candle almost hitting our entry price, before having buyers pushing the price back.
With a market order, we would have had a better entry price, before losing the trade anyway. With a stop entry order, we accepted to have a worse price, but wait for a confirmation. We didn't have it and this allowed us to save money on a trade that would have hit the stop loss.
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