USDJPY—Short setup?

Flipping through my charts this morning, USDJPY caught my eye as a possible short. Looking at the 3-hour chart, it’s been in a robust downtrend. It has bounced and is currently approaching resistance at 88.64, the downtrend line on this chart from October 26. It’s also at a prior support level on the daily chart and that should reinforce resistance here.

However, I’m holding a bit before I short the pair. First, I’d like to see it touch that trend line. Second, RSI has just moved into overbought and seems to be overtaking the levels achieved in October so momentum is still building. At this point, I’ll begin watching the hourly chart to see if RSI falls off. I’ll also watch candle behavior. If RSI drops, it might be a reasonable short. The stop needs to be tight as there is more resistance overhead at 89.70 (downtrend line from July) and 94.03 (downtrend from March).

Here’s the 3-hour chart:


© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.