Stop Run Reversal Day Trade & Confirmation Entry Long On The GBP/JPY 14/04/2011
When we first came into the fx trading room for the morning we had a nice stop run reversal setup on the EUR/USD. This trade was based off the 1H chart on the Euro. A stop run reversal setup in the case of a long position must move through the major support by at least 5 pips and preferably 10, and this trade setup went through the previous swing low by 13 pips thus meeting that criteria. After breaking the low, the market must then close back up above that support area, and this clearly did. Additionally it closed as a nice hammer reversal candle.
When the market went through the support it came down and touched the 200EMA which supported the long position even further. We went long after the stop run reversal candle formed and took +10 pips out of this trade. Overall this day trade has given up 100 pips off this setup. My exit was the mistake of not keeping in mind the longer 1H setup. After the entry I went to the 15M chart as normal and got shaken out. It’s important to remember that this forex day trading strategy normally produces very large moves in the forex market and thus you should stretch your take profit beyond normal. Lesson learned, and on to the next trade! For more information on day trading the stop run reversal set up check out the article entitled Day Trading Stop Run Reversals In Forex
After our first day trade we had another setup on the USD/CHF that ended up break even, and then towards the end of the session we had this nice confirmation entry long on the GBP/JPY. As with every single confirmation trade we take the Fx market must be coming off of some type of support or resistance, and this was no different. An hour earlier the market had set an overall low which is marked by the red circle.
Candle #1 came back down to this support, touched it, and then closed as a nice hammer formation thus meeting the criteria for the first candle in the 3 candle confirmation entry setup. Candle #2 in the case of a long setup must close above the body of your reversal candle (candle #1). As you can see candle #2 clearly did this and thus meet the criteria for a confirmation candle. After those two candles formed we now knew direction, and simply had to wait for the market to pull back into the body of the reversal candle (candle #1).
Preferably you will see this retracement happen during the third candle but things didn’t play out that way on this trade setup. However candle #4 made a pull back close enough to the body of the reversal candle for me to take the entry long. We got filled at 135.80 and closed half of the position for +40 pips. This trade is still running, and as of writing this we are up right around +100 pips on the last half of this position. I said going into this that we are in a good fundamental position to hold a carry trade for at the very least a few days.
Remember a few weeks back there was a joint intervention to weaken the Yen? I said a few weeks back in the room that I expect them to run the USD/JPY up into the 92.00 area, and maybe even the 95.00 area. If this happens we should have easily 1000 pips or more of potential upside in the GBP/JPY. Now we may not hold it long enough to see that, but I mention it in case we get another deep retracement against this strong up move we have had in the Yen crosses. If we do, and the opportunity presents itself, you might want to hold a Yen cross long position for a while as a carry trade. The good thing here is that you will get positive rollover rates each day you were to hold that position. If my bias on the Yen changes I will let you all know. I wish you all the best and hope these recent trade updates are helping. I would love to hear some feedback or questions. Please feel free to email me through the contact us page on the site. See you all tomorrow and happy trading!