Reversal Trading Forex Pair CHFJPY

I know many readers of my trading blog enjoy the walk through of various trades that happened and that were listed in my free Forex setups that I post every week.

All trading setups are located on chart locations where my technical analysis approach shows that there is the potential of a strong imbalance and the market tipping in that direction.

Some charts that I look at are tempting to post but there is some ambiguity and unless I can spot the setup quickly, I ignore posting them but they stay on my own personal watch list.

Let’s talk about why this Forex setup was labelled as a good reversal trading opportunity.


You Can Trade Lower Time Frames

If you are someone who loves to trade the lower time frames such as 60 minute charts with some trading strategy, you can use these setups and look for the move to begin.  This, in a perfect world, will be obvious to most and there should be some type of momentum when price starts to move.

By using the lower time frames, you can day trade inside of the momentum moves on the daily charts.  You would want to stick with the direction of the momentum and not to try to call the bottom (or top) of the move.

There is a lot of opportunity for profit by keeping things simple.  Reversal against the trend trades, for me, require a REASON that price would want to reverse.  It may only be a temporary reversal and not a trend change but there is opportunity there.

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CHFJPY Reversal Trading

One setup that I posted was on the CHFJPY and you can see that chart below.

I want to discuss what attracted me to this chart and why I considered a counter trend approach as opposed to waiting for a pullback in price and then continuation of the move.

This is the current chart and you can see that the breakdown was strong and I know a few of my readers were able to jump on this train.

Breakdown of CHFJPY Short Trade

  1. This line represents the resistance zone of a trading range that this currency pair was in.  Price was making higher highs leading into resistance which is a bullish sign.
  2. These wicks show sellers (or longs exiting trades) but the key is that price is ranging at resistance and price, even with a strong show of upper shadows, is unable to make any more downside.
  3. After price breaks, we see these two large momentum candlesticks and what’s important to understand is that these were very different from any run of price on this chart.  There is momentum in terms of strength but also excessive momentum that can lead to strong mean reversion.  If you were using trend lines, you would see a strong angle instead of the more “tame” 45 degrees.
  4. This is a weekly resistance zone and if you go up to a monthly chart for better viewing, you can see the price pattern on a more macro level.  This area is price revisiting a former resistance area – that was then potential support that failed – and this is the same area acting as resistance.
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The green circles measure what I would consider leg one of this move.  The red circles is the extension of that measure to give an approximate measured move price target.

The entry on this trade was simple and is no secret – it appears in many of my updates – sell a break of the reversal candlestick and stop placement is a distance above the pivot high.

Traders that took this trade and have been studying my work, were up over 270 pips at one point.

You must have a way of taking profits.  Whether it is a “scale and trail” method or some multiple of risk, you must know how to get out of these trades.

If you are just “watching” and trying to milk the profits, as I mentioned in the comments, greed is never a good thing.

Have a plan and stick to it.  You would have been greatly rewarded in this trade.