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Compelling Risk, Reward Opportunity on AUD/JPY from Confluent Kumo Inflection

By , Forex Trading Instructor
28 November 2011 22:11 GMT

Compelling Risk, Reward Opportunity on AUD/JPY from Confluent Kumo Inflection

Traders across the world were met with strength in risk-on trades today. For newer traders, or those just finding markets days like today can prove conflicting. The longer-term substantiated down-trends that were previously seen in the likes of the AUD/USD, EUR/USD, and EUR/JPY currency pairs were negated by bullish price movements.

This is where a longer-term approach can help.

One of the systems that I like to employ for longer-term trading is Ichimoku; a trading system/indicator that was developed in Japan. Many traders believe Ichimoku to have special relevance to Yen based pairs such as EUR/JPY, or GBP/JPY; under the premise that traders in Japan may be utilizing Ichimoku on these currency pairs.

Ichimoku can present a lot of information to the trader with one single indicator. One of the more compelling areas of Ichimoku is in regards to ‘Kumo,’ or ‘The Cloud,’ which is considered to be a variable area of support and/or resistance.

If you’d like more information on Ichimoku, you are certainly welcome to download and peruse the ebook that I had compiled on the subject. You can download directly by clicking HERE.

A recent inflection off of the top-side of the Kumo on the 4 hour AUD/JPY chart presents a compelling opportunity to look at short positions.

compelling_risk_reward_opportunity_on_audjpy_after_confluent_body_Picture_1.png, Compelling Risk, Reward Opportunity on AUD/JPY from Confluent Kumo Inflection

Created with Trading Station 2/Marketscope

By moving out to the Daily chart, traders will notice a confluent inflection with the top side of Kumo:

compelling_risk_reward_opportunity_on_audjpy_after_confluent_body_Picture_4.png, Compelling Risk, Reward Opportunity on AUD/JPY from Confluent Kumo Inflection

Created with Trading Station 2/Marketscope

Notice the line set at the Daily high for today’s trading activity (11/28: high of 77.815). This is the line I am using for a stop on the trade. This equates to approximately 65 pips of risk as of current market price.

However, if I am correct – there is a lot of room on the downside for the currency pair to run. Recent price has traded as low as 75 on the AUD/JPY currency pair – and I am using this swing-low support as my profit target on the trade; presenting an approximate risk/reward ratio of 1 to 3.5.

compelling_risk_reward_opportunity_on_audjpy_after_confluent_body_Picture_7.png, Compelling Risk, Reward Opportunity on AUD/JPY from Confluent Kumo Inflection

Additional Resources:

Ichimoku E-Book (direct download link)

Money Management Lesson 1 (From DailyFX PLUS On-Demand Video Course)

Clarifying the 5% rule

--- Written by James B. Stanley

To contact James Stanley, please email Instructor@DailyFX.Com. You can follow James on Twitter @JStanleyFX.

To join James Stanley’s distribution list, please click here.

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28 November 2011 22:11 GMT