The JPN225 (Nikkei Index) has experienced a dramatic down turn from its 10,900 high established on February 16, 2011. Finding the Index trading 11% lower from this point is not terribly shocking news as Japan has gone through a series of crippling natural disasters. As money continues to flow out of Japanese stocks, the outlook for the Nikkei average remains grim.
Taking a look at our daily chart we can see that price has recovered off our lows set on March 15, 2011 at a price of 8,335. Currently we can see that our chart is forming a long term consolidation pattern, indicating that there may be a potential breakout in store sooner than later for the Index. Resistance is now found at the 9,750 handle allowing for a variety of trading opportunities.
Price Action
Zooming in to the 4Hr chart we can see price remaining in a well defined range between support (9,375) and resistance (9,800). Strength of these levels can be determined by looking at the amount of times price tested but failed to breach these levels. Each line has undergone two tests, validating their strength. Range trades can begin to look for sell opportunities against resistance. A breakout of these levels would warrant a change in trading strategy as we would look for price to establish a new trend.
Trading Opportunity
Due to the solid resistance at 9,800 on the JPN225, we have a range trading opportunity to sell near this price level. Risk reward is very clear as stops should be placed above resistance near 9,850. Targeting support at 9,400 or better gives us a strong 1:8 risk reward setting on this trade.
Alternative scenarios include waiting for price to break our range support below 9,300 . Entry orders can be set looking to join the trend in a downward direction.
Walker England contributes to the Instructor Trading Tips articles. To receive more timely notifications on his reports, email instructor@dailyfx.com to be added to the distribution list.
