Technical analysis can be applied to any market – including stocks, bonds, commodities, currencies and more. I enjoy trading currencies, and today I want to share a setup that I’ll be using over the next few weeks – including during the election.
In creating this trade setup, I’m not trying to avoid election-related volatility. Instead, I’m looking to harness it. Let’s check out the chart.
Today, we’re looking at a chart of the Australian Dollar (AUD) vs. the Japanese Yen (JPY). If you’re not familiar with the currency pairs, think of AUDJPY the same way you would a stock, such as IBM.
AUDJPY has formed a descending triangle (black lines), along with a high (H), a low (L), and a lower high (LH). If a lower low forms, a breakdown will occur.
This strategy is unusual because it contains two entry points – 73.75 and 75.50, both in green. One entry is located at the breakdown (lower low) point, and the other is against the descending trendline of the bearish triangle pattern. Each entry is 1/2 the size of a normal position, since it’s possible that both entries could be executed.
This trade has four targets, all listed in blue. Each target is based on a support or resistance level, as indicated by the arrows. My protective stop is shown in red.
I’m anticipating high volatility, which is why I’m trading the Aussie against the yen. The Japanese yen is considered a “safe-haven” currency, which means it tends to strengthen when volatility is high.
If the yen strengthens in response to volatility surrounding the U.S. election, that could be enough to send the Australian dollar hurtling toward my targets.
Is there a stock, commodity, or currency you’d like to see analyzed on Ponsi Charts? If so, feel free to leave a message in the comments section if you have a request.
Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here
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