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EURJPY Traders Benefit From Trendlines

By , Forex Trading Instructor
21 June 2013 19:00 GMT

Article Summary: As Yen crosses decline traders will look for opportunities to sell with the market. Today we will review trading the EURJPY using an active trendline.

Learning how to identify trendlines is an important price action tool that all technical traders should master. These lines of support and resistance graphically represent areas of supply and demand as traders enter and exit the market at specific points. Understanding these points can allow a trader to create an easy to use, all in one trading plan. So lets begin by looking at an example of a current trendline established on the EURJPY currency pair.

Today we are going to examine an ongoing trendline on the EURJPY 4Hour chart. Pictured below, we can see price declining on the pair with several price peaks being connected. To draw this trendline we need to begin with at least two common points on the chart forming a lower high as price decrease. Once connected, we will now have a line on our chart acting as resistance. In a downtrend resistance will work as a price ceiling which will be the basis for our trading plan.

Learn Forex –EURJPY Trendline

EURJPY_Traders_Benefit_From_Trendlines_body_Picture_4.png, EURJPY Traders Benefit From Trendlines

(Created using FXCM’s Marketscope 2.0 charts)

Now that we have identified a trendline, traders should prepare to enter the market in the direction of the trend. Since our trendline is declining, this means traders should look to sell towards lower lows. From this point finding entries becomes very straight forward. New sell entries can be positioned every time price touches overhead resistance. Below we can see an example of where a trader would have potentially sold the market as price moved to touch our declining trendline.

Once an entry is planned, managing risk with a stop loss should be our next consideration. Since the EURJPY is currently declining, traders can place their stop orders above our current trendline. In the event that price moves above the line, our current analysis would be invalidated and all trades should be exited. Since trading a downtrend is reliant on the creation of lower lows, limits can also be placed under the previous low to create a positive Risk / Reward ratio.

Learn Forex –Gold Risk/Reward Strategy

EURJPY_Traders_Benefit_From_Trendlines_body_Picture_7.png, EURJPY Traders Benefit From Trendlines

(Created using FXCM’s Marketscope 2.0 charts)

One final great point about trading trendlines is that the trading plan for entering into the market is easily repeated! In a downtrend like the EURJPY above, once a trendline is established, new sell positions can be taken each time price approaches resistance. This opinion would only be invalidated upon price breaking out through our trendline and closing above current resistance.

---Written by Walker England, Trading Instructor

To contact Walker, emailwengland@fxcm.com. Follow me on Twitter at @WEnglandFX.

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21 June 2013 19:00 GMT