AUDJPY Short 81.37/77.17: Anatomy of my first 400+ pips trade

420 pips in my demo account to be exact.  Still, I feel very lucky.

In this post, I will review why I entered this position, why I added to it, and why I exited.  The goal is for myself to learn from what works and what can I do to improve on this trade given some hindsight advantage.

The Signal

See Figure 1 on the daily chart of AUDJPY (first entry price pointed with blue arrow).  Notice the lower highs, with the 2nd high inside my fChannel and the 3rd (last, just before entry) high below a yet longer term fChannel.  Plus 1 point for the lower highs and another 1 point for the highs moving into the channels.  Two points here.

AUDJPY

The Choice

While both AUDJPY and AUDUSD seemed promising.  I focused on AUDJPY because the Yen seemed better poised for strength.  I discussed my method of choosing a better counter currency for trading in another post, so I won’t discuss it here.  However, as this trade became more and more obvious and into the green, I diversified my short by adding shorts in NZDJPY and NZDUSD.  Those two netted around +100 and +250 pips also.

Another plus 1 point for picking and choosing.

The Confirmation

What really gave me confidence in this trade is the price action in gold in comparison to the Aussie.  Figure 2 shows the Gold Futures price (/GC, lower left) and Australian dollar futures (/6A, middle left).  Notice that gold has been trending up steadily for days but the Aussie made a lower low.  That’s a negative divergence.  Plus 1 point.

4-hour charts of forex markets, gold, and crude oil

The Timing

For timing this trade, I observed the intraday movement of AUDJPY, EURUSD, and other related pairs.  The most obvious sign of Aussie weakness was from comparing the price action of EURUSD and AUDJPY.  The 3-hour charts of EURUSD and AUDJPY are shown in Figures 3 and 4, respectively.  Notice on Nov 24 and 25, EURUSD trended higher and made a new high.  At the same time, AUDJPY barely moved on the 24th and squeezed even more on 25th.  The difference was even more noticeable when I was watching the 30-min at the time.  I had thought that my datafeed was lagging when AUDJPY barely moved yet EURUSD was rocketing up.

Plus 1 point for the 3-hour price action and then another 1 point for the 30-minute price action (not shown).

EURUSD, 3-hour

AUDJPY, 3-hour

The Entries and Exits

Six points total for the trade, time to establish a position.  You can see my orders in Figure 4 above.  My first entry was Nov 25 15:12 at 81.37 with a half position.  It is marked by a yellow triangle at the cliff beforethe dive (how lucky).  I added another half that evening 23:06 at 79.94.  I was waiting for a 50% retracement to 80.50 to add but that didn’t seem to be happening.  So I added 1/2 when AUDJPY failed to break 80.0 with a strategy to add another at 80.50.  But 80.50 never happened and it took another dive.

My exits are determined at the time as usual by using stops.  I simply keep moving the stop along and narrowing them once we break support level.  After the move became vertical, I zoomed out to the daily chart to view potential targets.  The 77.0 and 76.00 levels (as shown in Figure 1) became my not-be-greedy targets.  I had my stops really tight at those point and even had a take profit set for half the position at 76.0, but that level wasn’t tested before I got stopped out.

The two red dots at 77.17 and 77.08 are my stopped exits as shown in Figure 4′s last bar.

The Conclusion

What made this lucky trade happen is that I had spent a lot of time analyzing it from different perspectives and watching the intraday price actions for days.  I also took my time to scale in and out to minimize my risk.  To make this a habit, I will use this point counting system from now on to help me analyze more and trade less.

One thing that I’d like to improve upon is to be more aggressive on a winning position.  How?  That will be saved for another post when I figured it out.

Related posts:

1. Paper Trade: retrying AUDJPY short @ 84.52, Stop 85
2. Paper trade: Short AUD/JPY @ 84.53, Stop 85.00
3. Paper trade: stopped out of AUD/JPY 83.59/84.90 (-130 pips) and EUR/JPY 136.73/137.50 (-77 pips)
4. Paper trade: Stopped out AUD/JPY longs @ 81.3 (+7 pips) and 81.29 (-28 pips)
5. Paper trade: Short NZD/USD @ 0.7520, out 0.7308 (+212 pips)