Forex Trade Idea: 2015-01-28
Spotted a simple technical setup on AUD/JPY that plays into the longer-term trend higher and has a positive carry.
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On the technical side, this pair has been in a long-term trend higher since the 2009 financial crisis low, and recently saw strong support around the major psychological area between 86.00 – 90.00 in 2014.
It’s heading back to that support area once again on broad comdoll weakness and risk-off sentiment over global slowdown fears and weak inflation. So that area may draw in buyers who not only like to play previous support levels, but who also like to play moving averages as dynamic support levels, like the 200MA moving into that support area. This setup could also draw in longer-term players who like to play big positions and collect some positive carry interest.
I’m going to be cautious with my entry on this one by waiting for the full pull back to 90.00 because there is the Reserve Bank of Australia monetary policy meeting next week. And the way central banks have been dovish lately, we may see the same rhetoric from the RBA and thus a further decline for AUD/JPY.
For now, I’m putting down a small position right at the major psychological level, and because I’m on the weekly chart, I’m going with a 2x weekly ATR as my stop cushion. My target is open, but I’ll look to the previous swing high to re-assess and make an adjustment if needed. Here’s what I am doing:
Long full position at 90.00, max stop at 85.50, initial target at 103.00
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.88:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess, adjust, or close down quickly if necessary. Stay tuned by following me on Twitter and Facebook!