When I began as a commercial banking trader years ago, I was a reactionary trader: going with flows, clearing up other people’s positions and from time to time putting on day-trades to make profits. Now being older and hopefully a bit wiser, I have a more selective, prudent and disciplined approach.
The best trades for me are the ones built on strength. I put on a small initial position and add to that position as market activity confirms my initial view and the trade gains traction. I am always looking for divergences and pull backs to enter trades. I rely on standard tools: relative strength index (RSI), stochastics and moving averages, to capitalize on trade entry.
Using the GBP/JPY chart, I am looking for an entry to buy GBP/JPY on a reversal of a long-term trend. As you can see the daily down-trend line has been violated, the stochastics are close to turning and there is some evidence of divergence in the RSI. The breaking of the trendline is not a signal, it alerts me to the potential of a divergence trade. Several additional confirmations are needed for me to enter a position.
Currently the GBP/JLY is trading around 133.75-85. I would buy on this occasion if the RSI gets to 40 or higher, which would signal the divergence I am looking for on this particular trade. Once in I would place my stop loss at 131.80. If it breaks above 136.00, I would add on to the position, as it would be clearing some overhead resistance. Once the direction is confirmed and I add to the initial position, I would raise my stop loss accordingly as the market dictates. My initial target for profit is in the 146.50-147.00 area.
Please note this would only pertain to this trade. Every trade is different. Technical analysis is a trailing mechanism. I try to predict where I think the move will occur, make the entry trade, then add on as the position gains traction. The technicals would then validate my thought process, but they are ever changing and I always look to make adjustments when necessary.
Also EUR/GBP 60-minute chart is exhausting to the upside. I am watching this too, to sell EUR/GBP. This also would be another validation to buy GBP in GBP/ JPY trade.
The markets have been nerve racking the past few months and my trading activity has decreased. Sometimes the best trade is no trade until the picture becomes clearer. Markets will be turbulent to say the least, but as long as I stick to my principles and discipline, there will always be another day to trade.
Remember: keep it simple. Be nimble. Bulls and bears make money. We all know what happens to pigs.
