Forex Trade Idea: AUD/JPY Trendline Break

For my latest forex trade idea, I’m basically going with a reversal on my previous AUD/JPY trade to play the bullishness on risk sentiment.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

AUD/JPY 4-Hour Forex Chart

AUD/JPY 4-Hour Forex Chart

With major central banks across the globe easing up a bit (or a lot) on monetary policy, I think the recent round of risk-on sentiment could be here to stay for a while, especially if the ECB introduces new stimulus measures and the FOMC backtracks on rate hike expectations next week. Of course, we won’t know what either will do until we get there, but I think the odds are good that neither tighten up policy at the very least. Cheap or free money tends to bring on more risk taking, which is why I’m looking to short a safe have, the Japanese yen.

I’ve decided to go long the Aussie against the yen because of both recent positive data, and the strong upside momentum the bulls have recently enjoyed. Plus, we just saw a text book declining trendline break-and-retest on AUD/JPY, which has now held as support and moved slightly higher. This pattern could draw in further technical buyers if the fundamental story I just described remains the same.

Since I’m not that great with timing my entries, I’m starting with a small nibbler at current levels, and I have another long position ready to go in case there is a pullback to the previous consolidation support areas on the four hour chart above. My max stop is the weekly ATR from the first entry for a lot of room to breathe, and my max target is the next major psychological area of interest, which was also the high for the second half of 2015. Here’s what I’m doing:

Long half position at market (85.05), max stop at 80.75, max profit target at 90.50
Long half position at 82.00, max stop at 80.75, max profit target at 90.50

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

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 4:1 if both positions are triggered. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!