After nearly 5 months of fighting the 96 level, AUDJPY finally closed convincingly higher today. But before we talk about that, let’s take a look at a pair that we’ve been watching all week.
EURAUD has been forming some really nice levels and today the market formed a bearish inside bar / bearish continuation pin bar. All of which occurred below former trend line support. The moving averages are crossed over and diverging and overall this market still looks pretty bearish.
Because this is a pin bar / inside bar combo there are really two ways to trade this setup but only one of them will produce a favorable risk to reward ratio.
The first way would be to trade it as an inside bar. The problem with this approach is that your stop loss would need to be 100 pips away with a profit target that is 130 pips away. This is less than the 1:2 risk to reward minimum, so this won’t work.
The second, more favorable way to trade this is as a pin bar. I do think we stand a good chance of seeing a 50% retrace. Therefore we can look for an entry at 50% which would give us a 3R+ trade with a target of 1.412.
Summary: Look for a short entry at approximately 50% of today’s range. The most logical profit target is 1.412, which is represented by the October and November lows of 2013.
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