Forex Strategies

Article Summary: Trend traders enjoy the luxury of first identifying market direction prior to executing a trading strategy. Once found traders can employ a breakout strategy for entries.

As we discussed in an earlier edition of Trend of the Day, there are many advantages to identifying and trading a strong trend. Below we can see a prime example of such a trending market. Currently the EURUSD has advanced as much as 542 pips since its July 2013 low at 1.2754. When looking at the chart below, it is important to notice the series of higher highs printed on the graph. With the EURUSD trending upwards, this makes the currency pair a prime candidate for future buying opportunities.

Today we will continue our discussion on trend trading basics by identifying potential breakout trading opportunities with the trend. .

Learn Forex – EURUSD 4Hour Uptrend



Trading Breakouts

After finding the current high in an uptrend, trading a breakout becomes a very straightforward process. Going back to our example on the EURUSD, the current high resides at 1.3296. This point is currently acting as an area of resistance for the pair. Resistance is a point on a chart that acts like a price ceiling. Breakout traders will wait for price to break through resistance, and create a new high before entering into the market. Traders will look to buy a breakout in an uptrend, with the expectation of price continuing to rise and create a higher high in the market.

Entry orders are an effective way to prepare for a market breakout. An entry order can be set through the FXCM Trading station and allows you to set an order at a preset price. In the event that the market trades through that price, your order will be executed and your trade triggered into the market. This method of trading is very popular with traders, especially if you don’t have the ability to constantly monitor charts. Regardless if you are in front of your charts or not, your trade is scheduled to execute as soon as s breakout occurs!

Learn Forex – EURUSD Breakout



Stops and Limits

After finding a breakout point to place an entry order, traders should then consider to manage their risk. There are many ways to do this when trading trends, but the easiest way to place a stop order is to again go to our charts and the aforementioned price action highs and lows. In an uptrend like the EURUSD, traders can always turn towards the previous swing low as a line of support. Stop values can be placed under this value to exit positions in the event of the market turning.

Once a stop is set, traders can then manage their profit targets by using a positive risk: reward ratio of their choosing.

---Written by Walker England, Trading Instructor


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Article Summary: The concepts of Ichimoku can be applied across the board on all time frames. Short term traders can take the same rules and apply them to their time frame for holding a trade. However, there are two key aspects you should focus on with short term trading.

“If you’re going to panic, panic early.”
-Wall Street Proverb

Trading short term has many real benefits if you’re comfortable with the seemingly erratic moves. Ichimoku provides a guiding light on trading in the direction of the trend but when you go down to a shorter time frame, a few key aspects of Ichimoku become exceedingly important. Here is a breakdown on what to focus on when trading on a shorter term time-frame like a 5-minute chart or one of its kin.
Trading In the Moment

Naturally, when trading with Ichimoku we advise that you always start with the cloud. The cloud has no mystic power that can predict what the market will do but rather works to
keep the odds in your favor by trading with a perception that the trend will most likely continue. Trend continuation is the most likely while never guaranteed outcome of the markets.

The Lagging Line & Base Line

Beyond the cloud, the two key aspects of Ichimoku you can focus on are the lagging line and the base line. The lagging line is seen as our momentum indicator and when the lagging line breaks upward or downward, we have confirmation to join the day’s trend. The base line is the longer term moving average and a crossover of price in the direction of the overall trend is a strong confirmation of trend continuation.

The lagging line acting as a momentum indicator is often a novel thought. However, momentum is simply a tool to tell us if the current moves is likely, while not guaranteed, to continue. When the lagging line confirms the trade by breaking through the cloud or price as resistance, which is often a good time to enter a trade with appropriate risk management.

Learn Forex: Short Term USDJPY with Lagging Line Confirmation



When the lagging line breaks out, it will often do so by entering into “open space”. Simply put, open space means that in a downtrend, there is nothing supporting price and it will likely continue to fall until selling pressure lets off the gas. In an uptrend, the lagging line breaking to the upside shows no resistance and you can ride the trend until buying pressure is exhausted which can be seen by the lagging line moving to the other side of the cloud.

Learn Forex: Lagging Line Day Trade Higher Shows Exhaustion / Exit When Lagging Line Flips



Did You Miss The Initial Blast Off?

If you missed moment when the lagging line breaks out in the direction of the trend, hope is not lost. You can simply wait for price to come back to the base line and then push back in the direction of the trend. If you’re not sure how to identify a signal once price comes back to the signal line, you can look to a candlestick signal that is showing continuation.

Learn Forex: Wait for the Market to Show You the Trend Is Continuing With A Baseline Cross



Ichimoku Weekly Trade: Buy NZDJPY if Price Breaks Above the Base Line Showing Continuation



Ichimoku Trade: Buy NZDJPY If Price Breaks Through The Base Line @ 79.35 To The Upside
Stop: 78.35 (Support with Bottom of Cloud)
Limit: 83.50 (Profit Target Based on Retracement toward Prior Low)
If this is your first reading of the Ichimoku report, here is a recap of the traditional rules for a Buy trade:

-Full Candle Bodies above the Kumo Cloud
-The trigger line (black) is above the base line (light blue) or is crossing above
-Lagging line is above price action from 26 periods ago.
-Kumo ahead of price is bearish and falling (red cloud = bearish Kumo)

Ichimoku is a dynamic tool that can be used on multiple time frames effectively. Regardless of the time frame, Ichimoku can help you see when a trend is likely to continue and help you recognize a good price to enter based on when price and the lagging line break through the cloud or price crosses the base line. On the chart above, the NZDJPY trend is looking for some support and if the trend continues we can benefit from a great buy trade at a good price in relation to our risk levels.

Happy Trading!

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Article Summary: The GBPCAD continues to trend into today’s heavy economic calendar. Learn if the trend on this Forex currency pair is poised to continue by using short term momentum analysis.

Canadian currencies have been popular this week with Forex scalpers. This is for good reason as most CAD cross pairs continue to trend against exceptionally well against other major currencies. Despite its strength it is always prudent to investigate if short term momentum is moving in tandem with a primary trend before placing any new positions.

Through this analysis scalpers will develop a trading bias, as well as identify the strongest currency pairs for trading.
Today we will focus on the GBPCAD currency pair. As it continues on its multi month downtrend, we will look to identify short term momentum to validate any new scalping opportunities.

Learn Forex –GBPCAD 8Hour Trend



Even though a trend is strong, normally along the way price can almost inevitably be seen retracing at some point against its primary trend. Scalpers can look to avoid these periods by using a series of price action techniques. One way to avoid counter trend scenarios is to identify short term market momentum by locating a series of lows and highs on the chart. In a downtrend like the GBPCAD, scalpers can use a blocking technique to divide their charts into segments or pricing blocks. If price is in a downtrend price should be making lower highs and lower lows for each segment of the graph. Let’s take a close look at the price action of the GBPCAD

Below we can see the current GBPCAD 30min chart divided into two pricing blocks. Block One is formed from Wednesday the 24th through Sunday the 21st. During this period the GBPCAD did create a series of lower lows, while declining as much as pips. Next we will look at Block 2 which again continued moving towards lower lows. It should be noted that if a strong trend is continuing, both blocks should be heading in the same direction. Our analysis confirms that is exactly the case with the GBPCAD. Now knowing that current momentum is headed lower in the direction of the primary trend, Forex scalpers may continue looking for new opportunities to SELL the pair.

Learn Forex –GBPCAD Trading Blocks



At present current price can be seen already trading beneath the Block 2 low. This move falls in line with a continuation of the GBPCAD downtrend. However in the event that price changes directions and the pair moves toward higher highs, this could the beginning of a short term reversal. In the event of price breaking above the Block 2 high at 152.32, short term traders should consider exiting any existing trades while searching for new trading opportunities.

---Written by Walker England, Trading Instructor


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Article Summary: Many Forex strategies focus on entry and exit signals of a trade. This article illustrates how traders can take the same signals, yet arrive at different profit amounts. Therefore, determining an appropriate amount of effective leverage is crucial to a comprehensive Forex trading plan.

Many traders focus all of their energy on finding the right entry and exit signal but still end up losing in the end. Today, I want to illustrate how two traders (Bob and Ed) place the same trading signals in their Forex account, yet end up with different equity amounts.

To keep the illustration simple, let’s look at a two trade series. Each trade has a 100 pip stop loss and a 150 pip profit target. The traders will lose on the first trade and win on the second trade. When you see the results on a score card, it would look something similar to this:



Trade results in pips

At the surface level, it looks like this trader is doing well. They are maintaining a positive risk to reward ratio, they have a good win ratio, and the number of pips collected on this series of two trades are positive 50 pips.

Now look at what happens to the account’s equity when Bob aggressively over leverages his account while Ed uses more conservative amounts of leverage.

Trader Bob
Starting Capital - $10,000
Account is set to 50:1 leverage. He thinks he is conservative and implements 40 times effective leverage.

	Trade #	Trade Size	Value per Pip	Trade Result	Profit/Loss	Acct Equity
	Trade 1	400,000	40	-100	-4000	6,000
	Trade 2	240,000	24	150	3600	9,600

Hypothetical results for illustrative purposes only.

Notice how Bob’s two trade sequence netted him +50 pips yet he lost $400 in his account. Obviously, the second trade had a much smaller trade size than the first, but when you over-leverage your Forex account, any losing trade damages your capital base to the point where you need to change your trade size or deposit more funds.

Trader Ed
Starting Capital - $10,000
Account is set to 50:1 leverage. Ed has gone through our DailyFX EDU training materials and wanted to trade conservatively. He determined the appropriate amount of effective leverage for him was 5 times.

	Trade #	Trade Size	Value per Pip	Trade Result	Profit/Loss	Acct Equity
	Trade 1	50,000	5	-100	-500	9,500
	Trade 2	47,000	4.7	150	705	10,205

Hypothetical results for illustrative purposes only.

Ed placed the same trades as Bob and had the same starting account balance as Bob, but Ed implemented a more conservative amount of leverage. His trade sizes were 1/8 the size of Bob’s yet:

• Ed ended up with higher equity relative to Bob
• Ed’s net profit/loss (P/L) was positive while Bob’s P/L was negative

Two points to take away from this illustration.

• When faced with a losing trade, high degrees of leverage destroy your capital base forcing you to change your future trade sizes or deposit more funds.
• When using conservative amounts of leverage, your equity P/L tracks your net pips P/L

Though we place trades in hopes of it working out in our favor, we must also be prepared if it doesn’t. Part of that preparedness is a result of determining an appropriate amount of effective leverage. At DailyFX, we talk about using less than 10 times effective leverage. That way, when you are wrong on a trade, you still have the majority of your account capital remaining.

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education


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Article Summary:There are many ways to see when price is getting ready to breakout. While no method or analysis can guarantee what will happen tomorrow, here are three ways to enlighten you as to when a big move can be developing.

Change is not merely necessary to life – it is life.
-Alvin Toffler

Traders who have witnessed a big breakout that turns into a trend want to know how they can get in on the ground floor. While we’ll never be able to know for sure exactly what will happen tomorrow, we can build an edge by noticing common traits of the market preparing for a breakout. Once you’ve understood these tells of a market about to breakout, you’ll be ready for the moves and only have to focus on where you want to exit whether the trade goes in your favor or against you.

The Three Tells Of a Soon-To-Be Breakout

This is not an inclusive list but it is rather effective. When you’re looking at a chart that looks like it’s going nowhere fast you can look for one of these three things and can either wait for the breakout or set an entry order so that you’ll get in on the action when the market is moving.

Here are the three things you can look to as a prelude to a breakout:

1-Temporary Price Consolidation Patterns after a Big Move
2- Sentiment Loading Up On One Side against the Prior Move
3 – Oscillator Consolidation

Price Consolidation after a Big Move




There are a handful of consolidation patterns. Sometimes, you’ll notice price moving into a wedge with lower lows and lower highs at price looks like a compressed coil. This is a particularly exciting set-up because as price begins to make its way to the apex of the wedge, you can begin to set up your orders on either side to take advantage of the impending breakout. If you don’t like the idea of having two orders on, then it is recommended that you set up an entry order in the direction of the prior trend.

Sentiment Loading Up On One Side against the Prior Move

Sentiment has become a favorite form of analysis here at DailyFX. What we’ve found is that traders are often statistically inaccurate at buying bottoms and selling stops. This means that when a trend is in place and sentiment begins to fight the prevailing trend, a strong impulse of the direction of the prior trend is often not far behind.

Learn Forex: Sentiment has Consistently Offered Sell Signals on the AUDUSD Pair



One of the easiest ways to combine sentiment analysis into your trading is with the DailyFX Speculative Sentiment Index (SSI). The SSI illustrates the positioning so that you know if many traders are loaded onto one side of the trade. The SSI is read in integers so that if the reading is ‘+4.5’, then 4.5 traders are long for every one that is short. What you want to be looking for is an overloading on one side which is counter to the overall trend. Therefore, if the trend is decidedly to the downside and you notice more traders buying than selling, you can take that as a signal that the next move of the downtrend may be a violent move as all of the traders that were long will now have to unload their position regardless of the price which further develops the trend.

Oscillator Consolidation

Many traders like to use oscillators to help clearly evaluate market direction and strength. A very popular oscillator is the MACD because it can help you see when price and momentum are either in agreement or are showing divergence which can precede a big move. When the oscillator begins to show a coiling affect along with a triangle or consolidation like we saw as the #1 reason, we can get ready for a rather big move.

Learn Forex: USDJPY has MACD Consolidation That Confirms Breakout



Just like most traders use oscillators or indicators, you can use the oscillator for a confirmation of the breakout. When the breakout occurs, you can take the trade in the direction of the breakout and place your stop above the most extreme move against the unfolding trending during the consolidation patterns.

Closing Thoughts

These three patterns are meant to give you a road map. However, there are no certainties in trading so once a set-up like the ones mentioned above appear, it is important that you pre-define your risk. Once the risk is defined, you can see if the trade is worth taking to help you reach your trading goals by trading in the direction of the predominant trend.
Happy Trading!

--Written by Tyler Yell, Trading Instructor

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Article Summary: The bullish engulfing pattern is an easy to identify price action tool that can be with any Forex strategy. Today we will learn how to use the bullish engulfing pattern for trend trading.

Spotting price reversals and continuations is an important skill to master in the Forex market. Through price action analysis, traders can learn to use candlestick patterns to better navigate the market. Candle patterns can be a useful trading tool that can easily work into any active trading strategy. With this idea in mind we will focus on recognizing and trading one of the markets most clear cut price action signals, the bullish engulfing candle pattern.



What is a bullish engulfing pattern?

A bullish engulfing pattern is a candlestick pattern normally found at the end of a period ofdownward market pressure. Pictured above we can see the pattern itself which iscomprised of two completed candles. The first candle will depict the end of the currency pairs established weakness. The size of this primary candle can vary from chart to chart and is not directly pertinent to the engulfing pattern. Small candles such as dojis are considered preferable in this position though, as they can reflect market indecision in the current trend.

The second candle in the most important, which signals a return to a bullish market bias. This candle is expected to stick out from price action as a long blue candle creating newupward price momentum. To be considered a complete bullish engulfing candle, the high of this blue candle should close well above the high of the previous candle. The higher this secondary candle rises, the stronger our signal is considered. A new push of upward movement in this position on the chart, reflects new buyers overtaking the previous strength of the sellers.This actioncan be used in conjuncture with an established uptrend,with buyers looking to enter the market on new strength.

Learn Forex – EURJPY with Engulfing Patterns



Uses in Trading

Once you are familiarized with identifying the bullish engulfing candle pattern it can then readily be applied to your trading. Above is an excellent example of the pattern in action on a daily EURJPY chart. The EURJPY chart has moved as much as 2028 pips for the 2013 trading year. Along the way there have been price retracements against the trend, which concluded with the formation of a bullish engulfing pattern. These surges in price create new buying opportunities with the resumption of the long term bullish trend.

Once a bullish engulfing pattern is identified, traders had the option of considering a variety of trading strategies. While it is not uncommon to see traders execute on a candle pattern or price action alone, they can also be used in conjuncture with an oscillator such as RSI or a breakout strategy to give further confirmation of the reversal. The low of a bullish engulfing pattern can also be used as an area of price support in an uptrend. Regardless of the method chosen to pick a market entry, traders may choose to place stop orders under this price level in the event that the market retraces towards lower lows.

---Written by Walker England, Trading Instructor


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Article Summary: Trend trading with Ichimoku need not be confusing because the name is unfamiliar. Many traders prefer to trade with Ichimoku once they learn to see the trend in a new way with Ichimoku. This article is a complete breakdown of the components of the indicator as well as how you can turn this indicator into a trend following system.

Patience is a high virtue.
—Geoffrey Chaucer

Many traders are asked what indicator they would wish to never do without. My answer has never wavered as there is one indicator that clearly illustrates the current trend, helps you time entries, displays support and resistance, clarifies momentum, and shows you when a trend has likely reversed. That indicator is Ichimoku Kinko Hyo or more casually known as Ichimoku.

Learn Forex: After a Quick Lesson, Ichimoku Clearly Displays Trading Opportunities




Ichimoku is a technical or chart indicator that is also a trend trading system in and of itself. The creator of the indicator, Goichi Hosada, introduced Ichimoku as a “one glance” indicator so that in a few seconds you are able to determine whether a tradable trend is present or if you should wait for a better set-up on a specific pair.

Before we break down the components of the indicator in a clear and relatable manner, there are a few helpful things to understand. Ichimoku can be used in both rising and falling markets and can be used in all time frames for any liquid trading instrument. The only time to not use Ichimoku is when no clear trend is present.
Meet the 5 Members of the Ichimoku Family

Always Start With the Cloud

The cloud is composed of two dynamic lines that are meant to serve multiple functions. However, the primary purpose of the cloud is to help you identify the trend of current price in relation to past price action. Given that protecting your capital is the main battle every trader must face, the cloud helps you to place stops and recognize when you should be bullish or bearish. Many traders will focus on candlesticks or price action analysis around the cloud to see if a decisive reversal or continuation pattern is taking shape.

Learn Forex: The Cloud Alone Can Help Provide Direction




In the simplest terms, traders who utilize Ichimoku should look for buying entries when price is above the cloud. When price is below the cloud, traders should be looking for temporary corrections higher to enter a sell order in the direction of the trend. The cloud is the cornerstone of all Ichimoku analysis and as such it is the most vital aspect to the indicator.
Time Entries with the Trigger & Base Line

Once you have built a bias of whether to look for buy or sell signals with the cloud, you can then turn to the two unique moving averages provided by Ichimoku. The fast moving average is a 9 period moving average and the slow moving average is a 26 period moving average by default. What is unique about these moving averages is that unlike their western counterparts, the calculation is built on mid-prices as opposed to closing prices. I often refer to the fast moving average as the trigger line and the slow moving average as the base line.

Learn Forex: Look for the Trigger Crossing the Base In Favor of the Trend




The Ichimoku components are introduced in a specific order because that is how you should analyze or trade the market. Once you’ve confirmed the trend by recognizing price as being below or above the cloud, you can move to the moving averages. If price is above the cloud and the trigger crosses above the base line you have the makings of a buy signal. If price is below the cloud and the trigger crosses below the base line you have the makings of a sell signal.

Confirm Entries with the Mysterious Lagging Line

In addition to the mystery of the cloud, the lagging line often confuses traders. This shouldn’t be the case as it’s a very simple line that is the close of the current candle pushed back 26 periods. When studying Ichimoku, I found that this line was considered by most traditional Japanese traders who utilize mainly Ichimoku as one of the most important components of the indicator.

Learn Forex: The Lagging Line Displays Momentum of the Move




Once price has broken above or below the cloud and the trigger line is crossing the base line with the trend, you can look to the lagging line as confirmation. The lagging line can best confirm the trade by breaking either above the cloud in a new uptrend or below the cloud in a developing downtrend. Looking above, you can see that the trend often gathers steam nicely after the lagging line breaks through the cloud. Another benefit of using the lagging line as a confirmation indicator is that the lagging line can build patience and discipline in your trading because you won’t be chasing the initial thrust but rather waiting for the correction to play out before entering in the direction of the overall trend.

Trading With Ichimoku Checklist

Now that you know the components of Ichimoku here is a checklist that you can print off or use to keep the main components of this dynamic trend following system:

Ichimoku Checklist:
1.Where is Price in Relation to the Cloud?

• Above the cloud -filtered for buy only signals
• In the Cloud - be cautious but ready to jump in on the prior trend or finesse a current position. what the candle stick formations heavily
• Below the cloud - filtered for short only trades

2. Is price consistently on one side of the cloud or is price whipping around on both sides consistently?

• Ichimoku is best used with clear trends and should be set aside during ranging markets.

3. Which level of the Ichimoku would like to use to place your stop?

• If you use Ichimoku to place stops as well, you can either use the cloud or the base line.

Happy Trading!

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Article Summary:RSI is one of the most common indicators used for trading Forex. Today we will review RSI and trading tips for trending markets.

Swing traders look at the Forex market and attempt to buy currency pairs low in order to sell them at a later higher price. While swing trading strategies are popular, they completely rely on market timing. In order to help pinpoint their entries, traders can turn to a technical indicator. Today we will review the basics of the RSI (Relative Strength Index) indicator and how they can be used in conjuncture with a trending market.

Learn Forex – RSI with Overbought & Oversold Levels




RSI is considered a classic oscillator similar to MACD, CCI or Stochastics. It is calculated by comparing an recent gains to recent losses that push the indicator up and down as it follows the momentum of an underlying asset. To help make RSI easy to read the indicator can be seen segmented into overbought and oversold values. As RSI travels between the levels of 0 and 100, traders will look for overbought and oversold conditions.

Any reading of RSI above 70 is considered overbought. Traders consider overbought to be a condition where the market has pushed up price to making a new relative high. Conversely any value under 30 is read as oversold and considered an area where price may be interpreted as undervalued. Now its time to look how these conditions can be useful to a Forex trend trader.

Learn Forex – EURGBP 4Hour Uptrend




Once you have a feeingl for how RSI interprets price, it can then be used to time entries in trending markets. In the example above, we can see a 4Hour chart of the EURGBP currency pair. In an uptrend, traders can wait for an oversold condition. A reading of RSI under 30 would signal a pullback against the primary trend, allowing traders to enter a new position on a pullback from the current high. Entries can be timed when momentum returns in the direction of the trend when RSI closes back above an oversold reading of 30.
---Written by Walker England, Trading Instructor

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Article Summary: The EURUSD is approaching a 4Hour trendline. Learn how to trade support with today’s Forex trading lesson.

Drawing trendlines is an important technical technique for Forex traders to master. These lines can be drawn on any chart and effectively provide levels of support and resistance for trading. The key is to match up a series of higher lows in an uptrend and lower lows in a downtrend or a series of highs in an uptrend. Let’s look at a detailed example of drawing and trading tredlines using today’s price on the EURUSD.

Below is an excellent example of a trendline, developing on the EURUSD 4Hour graph. This line of support is found by connecting the lows from July 15th and August the 2nd. It may be difficult to find the points on your graph to connect at first but remember that not every trader will draw their lines the same way. The key is to identify at least two low points on your graph to connect in an uptrend. After these levels are joined, support can be extrapolated by then extending the trendline across the chart of our choice.

Learn Forex – EURUSD Trendline




Once the trendline is drawn, traders will begin looking for areas to enter new positions. The first opportunity to trade a trendline is on the third touch of support in an uptrend. Traders will look to buy the market at this point, while looking for price to then extend to higher highs. To assist in the timing of orders, traders may also use a technical indicator such as an oscillator. In today’s example we are going to time an entry with the trend using CCI (Commodity Channel Index).

Below you can again see our EURUSD 4Hour trendline, but this time we have attached the CCI indicator. Traders will execute when prices bounce off our trendline and CCI crosses back above an oversold value of -100. An oversold reading of -100 means that CCI has pulled back to a relative low compared to past price. This allows traders to better time their entries, by buying on a dip and entering into the market when momentum returns.

Learn Forex – EURUSD & CCI




Lastly, when trading trendlines it is always important to consider risk. In the event that price breaks underneath our supported trendline traders should look to exit all positions. Currently our trendline is providing support for the EURUSD near 1.3275. If price breaks down toward lower lows, traders should look to exit any long positions through the use of a stop order as depicted above.

---Written by Walker England, Trading Instructor


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Article Summary: The Japanese Yen trade that littered headlines from November of last year to May of this year has had many traders on the edge of their seats to get back in but for many reasons that may not be the BEST way to trade USDJPY. Ichimoku gives us a hand in seeing a developing opportunity.

“The speculator who can both be right and sit tight are uncommon.”
-Jesse Livermore

Shorting the Japanese Yen (JPY) was called the "hottest trade" in the financial world earlier this year. Along with shorting the JPY many hedge funds were simultaneously buying up the Nikkei 225 because a weakening JPY was almost perfectly correlated to a rising Nikkei. However, in mid-May, the trend stopped in its tracts and has begun a correction of much of the 2,660 pip move.
The Markets Never Move In a Straight Line

If you’ve been trading for any decent period of time, you learn that markets never move in a straight line. This is doesn’t have to be a negative occurrence, but rather can be treated as a way to take advantage of the ebbs and flows of the market. Elliot Wave based traders claim that markets divide between impulses or with trend moves and corrections or counter trend moves.

Learn Forex: Ominous Signs for USDJPY Bulls




Is USDJPY In A Correction or Trend?

For most traders the most important question they can ask themselves is whether the market is trending or in a correction mode. What’s more, correction can turn to new trends by reversing the prior trend. In using those terms it appears that USDJPY is in a correction mode and we’re going to look at utilizing Ichimoku to take advantage of that.

When will the Correction End?

That is a million dollar question that no one with a straight face could give you a definitive answer to. However, we can use Ichimoku to ride out the developing correction by trading in the direction of the cloud. The question then becomes what do we target?
Ichimoku Weekly Trade: Sell USDJPYon Price Break Below 96.00




Ichimoku Trade: Sell USDJPY Based on Lagging Line Breaking Below Cloud
Entry: Sell below 96.00
Stop: 98.00 (Resistance with Top of Cloud)
Limit: 93.80 (Last Low in mid-June)

If this is your first reading of the Ichimoku report, here is a definitive guide on the versatile indicator:
Here are the Selling Rules for the Indicator:
-Full Candle Bodies below the Kumo Cloud
-The trigger line (black) is below the base line (light blue) or is crossing below
-Lagging line is below price action from 26 periods ago – this is our trigger.
-Kumo ahead of price is bearish and falling (red cloud = bearish Kumo)

Ichimoku is a great tool to help you see when a trend is developing based on when price and the lagging line stay on one side of the cloud. On the chart above, the USDJPY trend has stayed consistently on the bearish side on the smaller time frame charts and the Daily chart (above) has just seen the lagging line breaking to the downside. Outside of Ichimoku, the sentiment on the USDJPY pair has a very strong sell signal as roughly 80% of traders are long as per our Speculative Sentiment Index.

Happy Trading!

--Written by Tyler Yell, Trading Instructor

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