Paper trade: Long AUD/JPY @ 81.22, SL 80.99, TP 82.50
Several major pairs are testing their support on this market correction with a 20 points drop in the S&P500 before 10 am. This is a short term capitulation scenario.
From looking at the major pairs, the long term trend still seem to be intact. In particular, I am interested in shorting Yen because I’m seeing FTC setups across the board in JPY crosses.
I compared AUD/JPY, CAD/JPY, EUR/JPY, GBP/JPY, and USD/JPY pairs to decide which one to go long with. Seeing that I already have a USD/CHF long position, USD/JPY is out. Then EUR/JPY is out too because of recent Euro weakness from my observations of intraday price actions. I haven’t had much luck with British Pounds, so GBP/JPY is out too.
That leaves me with my two favourites, CAD/JPY and AUD/JPY. So I checked with USD/CAD and AUD/USD charts to see which has better support/resistance. USD/CAD has a lot of resistance above 1.06, so going with CAD/JPY long seem like to be less risky. However, from looking at the 3-hour chart, I changed my mind to go with AUD/JPY long because it is showing a positive divergence there.
From the daily chart of AUD/JPY shown in Figure 1, we can see that the up-trend is losing steam. The price action is expected to be choppy. Long term condition, up and choppy.
AUD/JPY
Figure 2 shows the 3-hour chart of AUD/JPY, this is where things get more clear. Notice that AUD/JPY is testing the lower fChannel the third time in a month with the lowest RSI. This is a clear positive divergence.
AUD/JPY, 3-hour
However, the strong short-term down move is making this long entry very dangerous. Thus, I am using the NYSE intraday sentiment (Fig. 3) to pin point my entry. Notice the extreme negative open and then the intraday positive divergence as shown by the S&P500 and TICK.
NYSE intraday sentiment
As part of my analysis for this trade, I compared the current scenario with earlier this month. Figure 4 is the hourly chart of AUD/JPY when I entered this trade. Figure 5 is the hourly chart of AUD/JPY from Nov 1st – 4th, when AUD/JPY last tested the lower fChannel. I noticed that AUD/JPY had a tendency to break below my fChannel by about 50 pips before reversing. With the fChannel at 81.80 today, AUD/JPY should fall to 81.30. I watched that level closely this morning and timed my entry with the intraday sentiment as described above.
AUD/JPY, 1-hour
AUD/JPY November 1st-4th, 1-hour
Position size: 100%
Entry: 81.22, entered based on intraday sentiment.
Stop: 80.99, below round number support.
Target: 82.50, previous congestion and near top of channel.
Reward / Risk = 128 / 23 = 5.57 > 3. A risky trade with great potential.
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