This next trade on
my real account involved shorting the EURO JPY that continued its downtrend
following the Daily Chart’s Bear Crown formation. This trade was in sync with
other bearish moves against the Euro as the currency continues to decline
amid a deteriorating economic outlook for the Euro zone. Although there is a
consensus that the risk on a trade in the Forex be no more than the 2%-5% range, my strategy
involves risking 15% on each trade because of the high probability of success
of these setups.
The Daily Chart
below shows how the recent downtrend on the EURO JPY started with the Bear Crown/Head and
Shoulders pattern at the beginning of July. This was in sync and supported by
the strong bearish trend that was already in place on the Monthly Chart.
With the trend
direction already decided, it was then time to wait for an appropriate setup on
the 4H Chart that would allow us to take advantage of the downtrend. This came
in the form of a Pennant that was formed between the 97,25 and 96,33 price
4 HOUR CHART-THE
It was important
that this setup be strong enough to give the trade a high probability of
success, as weaker setups are more volatile and likely to lead to losses. With
the setup in place, it was then time to wait for the break of the Support
boundary using the 30 Minute Chart for entry.
30 MINUTE CHART-SIGNAL
On this chart,
we see that there was also a Pennant formed at the Support of the larger 4H
Chart. When the Support of the smaller Pennant was broken, it indicated the
start of the bearish breakout in the direction of the major trend. There was also a pullback and test of the broken Support in the form of a Counter Trend Line (CTL) break. An Entry Order
to sell below this signal was placed at 95,40, with the Stop Loss placed inside
the Pennant at 95,73 for a 33-Pip Stop.
The market then pulled back inside the Pennant before it eventually began the downtrend,
triggering the Entry Order. Luckily the Stop Loss was not hit by the next
pullback that came very close to that area before declining to the 100-Pip target.
30 MINUTE CHART- TARGET HIT
RELATED FINANCIAL NEWS
news regarding the crisis in Europe contributed
to the latest declines in the common currency.
Spain’s Prime Minister
Mariano Rajoy recently disclosed that the country would experience a second
year of recession while Valencia
became the country’s first region to state it would require financial
assistance. Naturally this made investors more nervous about Spain’s ability to meet its financial
obligations and increased the probability of a bailout in the near future. This
was reflected in Spain’s
10-Year Bond Yields climbing to 7.284, almost matching the euro-area record of
7.285 a month ago.
With the outlook
for Europe looking increasingly bleak,
investors have been gradually moving out of Euros into safer or
higher-yielding assets of other currencies such as the Aussie, the U.S. Dollar,
the Great British Pound and the Canadian Dollar. As seen in the graphs below,
the respective downtrends of these pairs are likely to continue for the next
several weeks, making short trades the more profitable choice.
EURO AUD – DAILY
EURO CAD – DAILY CHART
EURO USD – DAILY CHART
EURO GBP – DAILY CHART
THE WEEK AHEAD
The next few
days will see further weakness in the Euro with pullbacks along the way that
offer new entries for traders. With the EURO USD having just started its
breakout from the Monthly Chart´s Pennant, getting into this trade at current
levels is likely to provide large gains for long-term traders heading into
August. For short-term traders, 100-200 Pip targets are recommended for
breakouts from Consolidations and Counter Trend Lines on the smaller time
frames of the 4 Hour and 30 Minute Charts.