Friday, February 24, 2012

24 Feb 2012 - inside bar on USDJPY

I took a bit of a break over the last week. I'd spent so much time backtesting that I couldn't use my mouse for more than an hour. My index finger needed a rest from all the clicking.

Two inside bars formed on the GBPUSD and USDJPY at the close of yesterday's market, which was only 15 minutes ago.


Of these two bars, the USDJPY presents a cleaner setup with a TP target slightly below a significant resistance level at 81.500. This has been illustrated below. What I like about this setup is if the inside bar breaks, it will simultaneously break resistance around 80.250-80.350, providing plenty of space for a bull run. The 21 EMA also indicates a clear trend. Summing the probabilities, this looks like a suitable trade.


This setup is not as clean. Probably the most important observation is the fact that the 21 EMA is flat. Flat EMA = ranging market. This is where inside bars fail. Having said that, the inside bar is around a level of support, so if that support breaks, there is scope for a bearish run. However, price movement over the last few weeks suggest the cable is currently ranging.

Since inside bars are a trend-trading strategy, a pre-existing trend presents better probabilities, hence why I will trade the USDJPY and not the GBPUSD.

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