Two 50+ pip trades on USD/JPY

In my last post, I identified two key support levels in the USD/JPY based on the long-term chart: the first one was made in April 1995, a multi-decade low of 79.75. The second support level was made recently in October 2010, at 80.24, almost touching the historic low.

Let’s look two trades that unfolded since that post.

I suggested that with the recent support made at 80.24 and it being so close to the historic support, 79.75, this would be a good time to plan trades.

According to classic Technical Analysis, you buy off support levels; if the support gets broken and tests it as a resistance, then you sell from the previous support.

So in line with the logic that we’re trading above key support levels, I looked for buy trades.

The very time of the post was a good entry for a long trade. There were some chart patterns that indicated a bullish momentum.

1. Key trendline was broken and retested before moving up
2. Recent “Double Bottom”
3. Forming of a “Base” bottoming pattern
4. Recent 78.6% Fibonacci bounce
5. Recent 88.6% Fibonacci bounce


Trendline break & retest


Double Bottom pattern


Base pattern


78.6% Fibonacci bounce


88.6% Fibonacci Bounce


At the time of the post, the price was consolidating nicely. The price was making higher lows, and it almost immediately made a new 61.8% Fibonacci bounce:


61.8% Fibonacci bounce just prior to trade entry

So technically, the picture was looking bullish.

As the consolidation was tight, a 25 pip stop would have covered you easily. If you planned your trade around a simple 1:2 risk/reward ratio, you would have earned your 50 pips within hours. The price did actually rocket over 100 pips; that said, I rarely exit a trade after three times my risk, i.e. 75 pips in this case.

More recently, there was a brilliant text book example of a Reverse Head & Shoulders pattern. See the below chart:



The blue lines on the next chart mark an 88.6% Fib Bounce for the Right Shoulder:


88.6% Fibonacci bounce forming Right Shoulder of Reverse Head & Shoulders

My entry was at the consolidation for the Right Shoulder, 25 pip stop. I exited at 50 pips but the trade could have netted over 80 pips. I was content with a 1:2 risk/reward ratio on this trade.

H. Hamid