USDJPY → Bull Trend Over! Short to 145.000? Short Answer, Yes!
Updated
USDJPY completed its third leg up in this bull trend then failed to break the Resistance Zone on a second attempt, creating a double top reversal pattern. It followed by breaking the Bull Trend Support line. Should we short?
How do we trade this? 🤔
We have three legs up, failed to break the Resistance Zone on the third leg, then a second attempt, followed by a strong close below the Bull Trend Support line, which is right on the 4HR 30EMA. This is an ideal time to short.
Entering a 1:2 Risk/Reward trade with a 1:1 Take Profit target for half of my position. Once the first take profit is hit, the stop loss moves up to the entry price to lock in profits. The second half will be held to the second take profit of 145.515 or if there is a major reversal signal that is clear.
This analysis works directly off my last one, reference here:
💡 Trade Idea 💡
Short Entry: 147.207
🟥 Stop Loss: 148.055
✅ Take Profit #1: 146.355
✅ Take Profit #2: 145.515
⚖️ Risk/Reward Ratio: 1:2
🔑 Key Takeaways 🔑
1. Double Top Reversal after the third leg up in a bull channel
2. Near a Resistance Zone
3. Broke the Bull Trend Line
4. Gap to 4HR 200EMA and Support Zone
5. RSI at 38.00 and Below the Moving Average Supports a slight pullback and then fall.
💰 Trading Tip 💰
The longer a trend continues after 3 legs, the probability of that trend continuing lessens. Because of this decreased probability, we ought to reduce our risk when entering trades.
⚠️ Risk Warning! ⚠️
Past performance is not necessarily indicative of future results. You are solely responsible for your trades. Trade at your own risk!
Like 👍 and Follow to learn more about:
1. Reading Price Action
2. Chart Analysis
3. Trade Management
4. Trading Psychology
How do we trade this? 🤔
We have three legs up, failed to break the Resistance Zone on the third leg, then a second attempt, followed by a strong close below the Bull Trend Support line, which is right on the 4HR 30EMA. This is an ideal time to short.
Entering a 1:2 Risk/Reward trade with a 1:1 Take Profit target for half of my position. Once the first take profit is hit, the stop loss moves up to the entry price to lock in profits. The second half will be held to the second take profit of 145.515 or if there is a major reversal signal that is clear.
This analysis works directly off my last one, reference here:
💡 Trade Idea 💡
Short Entry: 147.207
🟥 Stop Loss: 148.055
✅ Take Profit #1: 146.355
✅ Take Profit #2: 145.515
⚖️ Risk/Reward Ratio: 1:2
🔑 Key Takeaways 🔑
1. Double Top Reversal after the third leg up in a bull channel
2. Near a Resistance Zone
3. Broke the Bull Trend Line
4. Gap to 4HR 200EMA and Support Zone
5. RSI at 38.00 and Below the Moving Average Supports a slight pullback and then fall.
💰 Trading Tip 💰
The longer a trend continues after 3 legs, the probability of that trend continuing lessens. Because of this decreased probability, we ought to reduce our risk when entering trades.
⚠️ Risk Warning! ⚠️
Past performance is not necessarily indicative of future results. You are solely responsible for your trades. Trade at your own risk!
Like 👍 and Follow to learn more about:
1. Reading Price Action
2. Chart Analysis
3. Trade Management
4. Trading Psychology
Trade closed: stop reached
Didn't profit this time! We had a good string of trades over the last few months, but this one didn't play out. Down 80 pips but still looking for a short entry.
Looking at another way I could have played the trade; the less risky route would have been a 1:1 Risk/Reward trade with a stop loss above the previous high of 148.800 and kept a similar take profit around the same price area. That would increase the initial risk on the trade, so my position size would been smaller as a result. You will see me take that trade quite often, but I'm also a fan of the 1:2 R/R with taking half profits at 1:1 which we missed by about 25 pips this time.
This is part of the process! Stay tuned for my next entry in a new analysis.
Trade active
We have our next short entry! USDJPY put in a lower high below the Resistance Zone at 148.327, followed by a strong push down below the micro-bull trend line. We're already almost to Take Profit #1 where we can lock in 50 pips of profit and swing the rest of the position to the 1:2 R/R target of 146.180.
Short Entry: 147.900
🟥 Stop Loss: 148.055
✅ Take Profit #1: 147.050
✅ Take Profit #2: 146.180
⚖️ Risk/Reward Ratio: 1:2
Note
USDJPY came unbelievably close to our first take profit (within 5 pips) but bounced hard to the upside. The price did come back down and re-test that area only to bounce again. These are some decent buy candles, but we need to hold our position as I'm still convinced the previous high will hold and is one of the premises of this trade.
Trade closed: target reached
Target #1 and Target #2 reached! A massive bear candle to the 4HR 200EMA and slightly beyond, our take profit caught the wick. This occurred after two failed attempts to break the 4HR 30EMA, a great short setup in its own right.
This trade captured 172 pips! A net 92 pips after our loss earlier in this quest for a successful short. The position size used was the same in both trades, so the 92 pips of profit is weighed the same. Now we wait for a pullback to the upside before potentially looking for another short entry.
A new USDJPY analysis will be coming soon!
Trade active
We have another short entry! USD/JPY gave us a nice pullback off the 4HR 200EMA to the 4HR 30EMA followed by a failed second attempt. That second failed attempt to break the 30EMA was our queue to short again. Going again for a 1:2 Risk/Reward trade using the 15m and 1HR chart for entries and exits and the 4HR/Daily for the macro view.
Stop loss moves to the entry price after the first take profit is hit.
Short Entry: 147.539
🟥 Stop Loss: 148.055
✅ Take Profit #1: 146.245
✅ Take Profit #2: 145.601
⚖️ Risk/Reward Ratio: 1:2
Trade active
Take Profit #1 was hit! Our stop loss is now at the entry price. We need the 1HR 30EMA to hold and for the price to fall to a new low. It's very possible we have a "W" pattern here that will bring the price back up to our entry area. We've already captured 70 pips with the first half of our position, so our profits are locked in. Let's allow the price action to play out!
Trade closed: stop reached
And there's the "W" pattern as predicted! Our stop loss was of course, hit by that massive bull candle. But we walked away with half of our position profiting 70 pips! Another trade closed and an overall profit for this analysis.
Here are final numbers:
1st trade: Lost 80 pips at full position size
2nd trade: 85 Pips profit on first half of position, 172 pips on second half of position
3rd trade: 70 pips of profit on first half of position, break even on the second half.
All position sizes relative to my account equity were the same between trades. So our profit/loss breakdown is:
Total profit pips at half position size = 327 pips
Total loss pips at full position size = 80
So that our profit and loss pips are worth the same, we need to cut the number of profit pips in half to 163.5. 163.5 pips of profit minus 80 pips of loss = 83.5 pips of profit at full position size!
This is how you analyze a chart, manage trades, and maintain discipline throughout the process. The loss at the beginning of this analysis was the result of a tighter stop loss so we could use our max position size with a 1:2 Risk/Reward ratio. We could have moved it above the previous high and executed a 1:1 Risk/Reward trade, but our position size would have to be smaller because our initial risk was larger.
The math works out better in the way I took three shorts rather than just the first one. I was able to capture more pips and with a larger position size.
A fresh USD/JPY analysis will be coming this weekend before the market opens!
-Joe Dean
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