May 2 – May 6, 2011 Weekly Winner: EUR/JPY Gets in the Mix

Before you dive into this sweet setup from last week, I suggest you check out my introductory post on the Weekly Winner to have a better understanding of my framework.

May 2 – May 6, 2011: EUR/JPY Price Action Review

EUR/JPY Hourly Chart

Last week, I took a short trade on AUD/JPY using an adding-to-a-winning position strategy. Unfortunately, I was a bit too aggressive on that trade and it didn’t work out too well for me.

After going through my charts and reviewing my trading, I see that there was a sweet setup that I could have taken on EUR/JPY.

At the beginning of the week, EUR/JPY wasn’t moving up and down the charts as much as it usually does. Traders were probably waiting for the ECB statement on Thursday before establishing their euro positions. On Thursday morning, price was as tight Forex Gump‘s 70’s flare out jeans, forming a nice Asian box setup.

As it turns out, commodities sold off sharply at the start of the London session and we saw EUR/JPY follow suit. With a bearish marubozu forming and the pair breaking its weekly lows, this would have been a good time to sell. We could’ve gone short with a simple 50-pip stop, and knowing that risk aversion was dominating the market, we could have held on to the position until the end of the week.

Using this strategy, the trade would have given us a reward-to-risk ratio of about 7:1, as EUR/JPY dropped all the way down to 115.50! Not bad for a conservative play!

Doing these reviews helps me realize that the setups are there for the taking. Winning though, will come down to strategy and execution. Perhaps last week is a good example of why I shouldn’t always look to press my trades.

  • Forex

    Looking at what you could’ve, would’ve, should’ve done in hindsight isn’t productive. In fact, it may be counter productive, since each set up, trade is unique even if the general principals are the same. A better alternative is looking the trades you took & analyzing that.

    However, if you’re still in the phase of developing your trading strategy then it would be beneficial to look back as you are now, just as long you still understand each trade is unique.

  • cyclopip

    I agree that reviewing actual trades we took can be very helpful, but I don’t think we can rule out the benefits of reviewing raw price action.

    For one, it helps us hone our setup-spotting skills. But more importantly, it gives us the confidence to actually TAKE those setups in the future. And seeing how price action unfolds and reacts to certain events also helps us understand what drives the markets.