EJ Downside & The Double 786!

Hello traders!

Hope you enjoyed this week’s Forex articles and FX advice! 🙂 Today we will be focusing on the EURJPY and the NZDUSD in our article! So sit tight and fasten your seatbelts for great a great ride up and down 😉

EURPJPY

The EURJPY is currently at the bottom of a huge consolidation area.

The currency was not able to break the bigger day top, which ultimately led to the bigger downside correction. Failure of one extreme often leads to a test of the other side (in this case failure of breaking top leads to retesting of bottom).

Will we see a break of the bottom or bounce?

Here are the arguments in favor of a bounce:

–          The EURJPY is now at a 886 Fibonacci retracement level;

–          The EURJPY is in a falling wedge;

–          The EURJPY took out downside targets;

–          The EURJPY has divergence between the bottoms;

–          The EURJPY could be making a head and shoulders pattern.

Despite all these elements, the EJ could break.

There are also good valid arguments for immediate downside. Very simply put, the most important factor is that, according to any currency trading training, the currency is basically making lower lows and lower highs and the weight of the downside could push the EJ lower.

APR 3 2013 EURJPY DAY

Translation to trading plan

The problem of any short trades is the fact that the EJ is so close to the bigger bottoms. So due to that support I am cautious of shorting the market with a clear support potential so close by.

I therefore rather wait for a different type of market structure before attempting a trade.

I am looking for either:

1)      the 4 hour / day chart down trend to retrace to higher levels, such as the 500 Fib;

2)      or wait for a break of the bottom and a 4 hour consolidation zone to hook back to the broken bottom.

Once we get the break of the bottom or retrace to a bigger Fib, we can start shorting the EJ again!

APR 3 2013 EURJPY 4 HOUR

NZDUSD

It is not the usual choice of my Forex currency trading. But the Kiwi is reaching an interesting area: The NZDUSD hit the 786 Fibonacci retracement level. But not just any ordindary 786: a double 786! Or in other words: the 786 hook back of a previous 786 bounce! 🙂 Always great stuff when that happens.

Those levels are always interesting Forex trading, because it gives us Forex traders great reward to risk potential.

I did not short the NZDUSD exactly at the 786, as the stop loss size would be quite massive and the trade would take a bit too long to develop for my taste. But they are great Forex zones and bouncing areas.

APR 3 2013 NZDUSD DAY

Plan of attack

My attack plan on this currency is to wait for the first signs of a turn on the 1/4 hour chart. The first signs of turn are in my definition:

a)      lower low, lower high on the 1 hour chart;

b)      1 hour downside impulse;

c)       1 hour upside corrective movements;

d)      4 hour bearish candles.

Of course 1 and 4 hour divergence could help this downside potential materialize.

The trade is not one for the faint hearted. The Kiwi has been moving up quite diligently for a while. However, if there are signs on a lower time frame the currency could be making a turn, then attempting to short the Kiwi with a  stop loss above the current top and 786 retracement would give a tight Stop Loss with plenty of space to the downside.

The target is the -0.272 target at 0.8060. That is 370 pips downside potential from current price levels. Of course it depends on where I would short the currency exactly, but the risk is very small, the reward quite massive. Even if the trade would only materialize once in 10 times, the trade is still profitable.

Question for you

I am kind of philosophizing what you would like to see more in my charts… and I realized that the best one to ask was my blog readers… It would be really cool if you could drop a short comment down below so that I get an idea which tools you prefer. Would you like to see me write more about trend lines, Fibs, tops/bottoms, support and resistance, Elliott Wave, moving averages, oscillators? Which tools would you really like to see in all the articles? Thank you for you feedback!

Alright folks, that’s about it for today. Don’t forget to add us to twitter @winnersedgetrad.

When you add us to twitter you can ask us our opinion on any currency and time frame and we will get back to you with some good old Forex technical analysis advice, so make sure to make use of such a great free of charge Forex trading advice potential!

Good Trading Everyone!

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