Paper trade: Short AUD/JPY @ 84.53, Stop 85.00

By Paul | Published: January 4, 2010

I haven’t done one of these trade analysis post for weeks.  So I thought I’ll start the year on this promising long term (more than a week) trade on one of my favourite currency pairs, AUD/JPY.  This entry on shorting AUD/JPY is executed according to my Forex Trend Reversal (FTR) setup.  Figure 1 shows the weekly chart.  Please excuse the mess.  There are only 3 relevant lines in addition to the price.

Referring to Figure 1, first line of note is the top of that 4-line descending channel.  Notice that 84.50 correspond with the resistance this week.  Secondly, there are 3 ascending trendlines drawn.  We have a triple X-cross on the 2 ascending and 1 descending lines at around 85.00 last week.  AUD/JPY failed to touch it.  If this trade goes well, AUD/JPY shouldn’t test 85.00 again because it has missed its chance.  That’s where I placed my stop.  Anyway, these are just doodles on a chart, we need confirmations.  For that, let’s take a look at the major Aussie crosses and gold prices in Figure 2.

AUD/JPY, weekly

Aussie crosses and gold, 4-hour

The recent strength in Aussie is clear in the 4-hour charts of Figure 2.  From top to bottom, Figure 2 shows AUD/USD, EUR/AUD, AUD/JPY, and GC (gold futures).  We also see that gold prices is staying at a depressed level below 1120.  This rising Aussie but toppy gold price is a sign of divergence.

Furthermore, we have a shooting star candlestick pattern in the previous gold price bar.  Gold spiked above 1130 briefly but couldn’t hold above 1120 so far.  Another plus for the short.

Now that the entry signals have been met.  I needed to time my entry.  This the the part that I should have done better.  I basically just shorted it at the ’50 resistance without giving it much thought.  The short-term bullishness is still strong and I really should have waited for a lower high on the 3-hour chart.  Figures 3 and 4 are the daily and 3-hour charts, respectively.

AUD/JPY, daily

AUD/JPY, 3-hour

I took a smallish position in this trade at an obvious resistance level.  My intention is to add to it as long as AUD/JPY stay below 85.  Also, a safer stop should be 85.50 as seen from Figure 3 (daily).  84.40 was a recent top in October.

Lastly, I chose to short AUD/JPY instead of AUD/USD because I have some other U.S. dollar longs already.

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This entry was posted in Aussie, Kiwi, Loonie and tagged AUD, entry, FTR, JPY, paper trade, short. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

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