Like printing money

It’s a rare trade setup that would cause me to take the affirmative step of blogging about the setup and suggesting a course of action for other forex players. The setup on the EUR/JPY charts is such a great opportunity to make a little quick cash with limited downside, I thought it worth an entry.

You’d be smart to take ‘investment’ advice from any layman with a grain of salt – even if the layman in question is up 300% in just 4 weeks, and 1100% since September 1. My only regret about my trading in the last 6 months is that I didn’t start with a bigger bankroll….. but I am wrong on occasion. If you’re going to trade this pair based on my analysis, make sure you do the homework for yourself.

With that disclaimer, let’s take a look at this setup.

EUR/JPY Hourly

This first chart is the hourly. The pair broke through resistance of the 50 and 100 MA at point 1, bounced off the 50 as support in figure 2, and finally blowing through both support points in figure 3. We threw a pin at the 200, bouncing all the way back to the 50 before being rejected right into the Friday close.

Generally, in the time that it would take to prep the charts and write the narrative, the trade would have played out. Since this setup was near textbook right at the close, it afforded me the time.

As you can see from the chart, we’re trading between the 50 and 100, having just been rejected at the 50. The 100 has proven to be little in the way of support, with the 200 requiring at least one more try to see if we get the breakdown I’m expecting. That support level would come in at about 158.25.

This hourly setup, in and of itself, wouldn’t necessarily make me salivate. But we have further confirmation on the daily charts:

EUR/JPY Daily

After the breakdown below all three support levels in late December (a great short ride), we dropped about 1000 pips in just a few weeks. I did very well on that trade, but bailed a little early. We’ve rallied from the lows on that move (about 152), threw a pin at the declining 50 on Thursday, and confirmed the reversal in Friday’s close. I am short 12 contracts from 159.02-159.51 (ave 159.33), and am targeting 156.30 as my first cover zone (partial – probably 6 contracts). From there, I’ll be looking for a bounce, getting short again on rallies of 156.60-157. Only a breakout above the 100 (which has proven the most solid support/resistance level on the daily chart) will invalidate my thesis about the direction for this next move.

EUR/JPY 15

If I’m wrong about this trade, I won’t be losing 200+ pips waiting to see if we get rejected from the 100 on the daily chart. Looking at the 15-minute chart above, you can see that we’ve been flirting with the band containing all three levels (50, 100 and 200 moving averages) all day Friday. We tried several times to breakout from the 200, but got rejected at trendline resistance each time, failing to close above the 200. We’re sitting right on the 100, below the 200 and above the 50. The red trend line along the top of the spikes on the 15 minute chart will be my main indicator. If we spike convincingly above this level, I’ll start to get out and look for another re-entry point for this trade. If it does go against me, I’ve got stop-losses ranging from 159.17-159.55. I don’t expect to see any of them tripped. I think the downside action will be fast and sloppy when the market reopens on Sunday.

Happy trading. May we all be $250 bucks a contract richer before we wake up on Monday!

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43 comments so far

i am curious about currency trading and specifically about the eur/yen trade you mentioned send info on how to open account please

dan west
February 23rd, 2008 at 1:45 pm

Sent you the signup info, Dan. Trading opens at 5 tomorrow, and I expect this trade to play out relatively quickly.

Holler if you need any assistance.

Micah
February 23rd, 2008 at 2:26 pm

Micah

I just got interested in forex a couple weeks ago and figure I will check it out a little more closely. I already have an account at thinkorswim and am planning to start paper trading at first. Do you think it makes much difference which broker you use? Any info on this appreciated thx Mike

mike
February 23rd, 2008 at 3:42 pm

The spreads can vary decidedly between similarly funded accounts with different brokers. Generally speaking, if you fund an account with more money, they’ll lower the commission you pay through spreads.

I’m guessing thinkorswim probably has good charts and analytical tools…. I’ve been considering taking my business there so I can consolidate all my trading into one account. I hear nothing but rave reviews, so I’m guessing your as well off there as anywhere. I use Forx.com at the moment…..

The key to being successful (in my estimate) is not to chase a trade. Learn to be okay sitting on the sidelines until you have conviction about a move. With the heavy leverage available, you can make a lot in a hurry. Don’t feel like you’ve got to be playing everyday.

Micah
February 23rd, 2008 at 5:10 pm

thx Micah – yeah I am satisfied w/ thinkorswim and they do have good charts, etc. Not sure about the bid-ask spreads given by TOS. For example, the curent bid-ask spread for eur/jpy = 158.98 to 159.02. Not sure if those 4 pips is a lot or little, but then, the mkt is closed right now so it may not be accurate. Lesser known pairs look like they have higher spreads (for example 15 pips for dkk/sek). I will check out forx.com.

I charted up the eur/jpy (1 day, with 15 minute bars)to see what I could make of it. I added the signals I like to use for stocks: macd (12,26) and slo stoch (21), and I would say it is on its way down, therefore sell (short) it. I am also messing around with RSI stoch 100 and that looked like it was saying the same thing as well.

Do you use indicators such as these and/or any other ones? I noticed you use moving averages in your discussion of the trade. Do they help you a lot?

Also would you be able to point me in the direction of some basic info on forex, I am interested in its similarities or differences compared to trading the stock market, since this is all I am familiar with right now.

thx again mike

mike
February 23rd, 2008 at 7:50 pm

The 4 pips sounds standard if you’re trading account balance is less than $10,000.

I use the stochastic, MACD and RSI with various settings, but rely heavily on technical levels such as support/resistance and trend as my primary indicators. Fibonnacis are also a standard part of my analytical rigor….

Moving averages are the most effective indicator I use in the heat of battle. Using the charts above, you can see how often these levels become points of reversal or breakout. I’m always aware of where the moving averages fall, and usually swap back and forth between a 15-minute and hourly chart while trading. Most traders use moving averages, so using them becomes somewhat of a self-fulfilling exercise…..

I can’t recommend any particular book or resource. General technical analysis resources are a good place to start, and in my experience TA is much more effective in currencies than equities. Forex.com offers regular training sessions on charting and various aspects of it, and I believe they are archived at the site. Not sure if you have to be a member, or at what account level to access it….

Micah
February 23rd, 2008 at 9:40 pm

That 45 pip spike at the opening was a gift to those just setting positions….. And not to be left out, I piled on 5 more contracts too. I just liquidated the new 5 when we dropped back to the 200 ma….. for a nice $140 flip in less than 20 minutes.

Fortunately, I had taken all my stops off because I planned to be at the keyboard watching this move. I would have been cranky if I’d let the head-fake at the open stop me out of my positions….

Micah
February 24th, 2008 at 5:31 pm

Micah

Was wondering if I can pick your brain again!

Looking at several currency pairs, it looks to me like a lot of them closely follow the 5 sma. In the past I messed around with a stock trading strategy based on using the 5 sma. The basic rules for entering long were something like: 1) The 5 sma should be heading upward at the time you enter; 2) Enter when you get a bar that closes above the 5 sma. Reverse these rules for going short.

I am thinking of checking this out along with sto-21, macd, and rsi to help me. Is the 5 sma a common indicator for use with forex?

I got on your broker site and plan to do all the free webinars, etc. Looks like they have a lot of good info on there.

thx and sorry for the basic questions, later mike

mike
February 26th, 2008 at 9:05 pm

About 4 years ago I went to a ForeX info thing. At the time it looked easy for someone new to money trading. The software was 4-5 grand $. That was to much for me. About a year ago I joined ForeX free account. I could’nt make heads or tails out of the charts etc. Is there a place for TRADING MONEY FOR DUMMIES. LOL Thats what I feel like when I go to the ForeX site. Please help, Thanks

Don Graham
June 11th, 2008 at 5:59 pm

Don,

Try going to forex.com to get a practice account. They have active traders who give you real-time advice, and have regular live programs to get you initiated into the basics of technical analysis and such.

Also – I have opened a new forum and blog site this week, and we do a lot of forex discussion. I used to do it somewhere else, but got tired of the overbearing owner who stiffled dissenting opinions. Visit us at http://www.3mx.org/forum – the Free Market Forums. I do regular analysis, and post my thoughts – there are others already there as well, and we’ll grow very quickly. I encourage you to drop by and see what we’re doing.

http://www.3mx.org/forum

Micah
June 11th, 2008 at 6:32 pm

I am seaching for some idea to write in my blog… somehow come to your blog. best of luck. Eugene

Eugene
October 22nd, 2008 at 10:05 am

My brother recommended I might like this web site. He was totally right.

This post truly made my day. You cann’t imagine simply how much time I had spent for
this info! Thanks!

semper gestion
March 17th, 2014 at 4:29 am

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December 21st, 2015 at 2:03 am

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