Trendline violation trade (27/6/07) GBPJPY +125Pips

December 28th, 2007 expert Posted in FOREX TRADING STRATEGIES and CONCEPTS, FOREX TRADING ENTRY STRATEGIES, FOREX TRADING EXIT STRATEGIES |

ONLINE FOREX TRADING TOPICS: Trendline violations, leading indicators, lagging indicators, relative volatility, Exit methods, following stop

The JPY was again one of the most volatile currencies yesterday. We traded the GBPJPY as the JPY’s volatility is sometimes increased in this GBPJPY cross. Yesterdays range for the JPY was 112 pips, the EURJPY 111 pips and the GBPJPY 266 pips (Enough said).

Today’s topic is leading indictors. Most indicators are lagging indicators as they tell you what has happen in the past (eg moving averages). There are many indicators that give an indication of what is going to happen in the future. These are leading indicators.

One of the most powerful leading indicators is a straight support or resistance line. This line need not be horizontal. All that it has to do in join the tops of bottoms of turning points in the price movement and extend into the future. This extension represents possible support or resistance in to the future – therefore turning it into a leading indicator. It is also referred to as a trendline.  In fact 90% of our trades use a trendline violation (Crossover) or bounce at the entry trigger.

Yesterday the GBPJPY was trending downwards quite strongly. We drew a resistance trendline over the tops of turning points on the candles to establish our resistance trendline. As the price started turning back slowly it came closer and closer to the trendline. On the strength of the buy signal on the momentum indicator (Also leading in this case) we anticipated a violation of the upper resistance line and placed an entry order just above this line and a stop at the last low. The price broke through the trendline (resistance line) and started trending upwards quite nicely. We had no target in mind for this trade so followed the price movement with a following stop that was moved to the last low every time the candle closed. We were stopped out when the price retraced giving back over 60 pips to the market. In hind sight closing the deal at +150 would not be a bad days trading.

The momentum indicator again showed good measurement of the 2 wave nature of the Forex market as discussed earlier this week.

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