Support and resistance levels can be an excellent way to determine buy and sell entrys. Below we have a EUR/JPY daily chart with a downward trend line, acting as resistance. This point of reference is established by connecting the April 2011 high at 122.06 with the July and October 2011 highs. Today’s price action has touched resistance near 103.50 but failed to breakout to new highs. This presents an opportunity for traders to enter the market and sell the EUR/JPY.
Since the trend is sloping downward, we can filter our trading for sell positions. Looking to take advantage of prices moving lower, we can employ an oscillator such as CCI to time our entry. The graph below currently shows CCI residing in the overbought region of the indicator (+100). We will look for the indicator to turn lower under this level prior to entry. Stops can be placed outside of our support line to exit the trade in an event where price makes a higher high.
My preference is to sell the EUR/JPY under support near 102.40. Stops should be placed outside of resistance near 103.90. Limits should be set target a minimum 300 pips profit at 99.40 to employ a 1:2 Risk / Reward ratio.
Alternative scenarios include prices breaking higher, over resistance.
---Written by Walker England, Trading Instructor
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