USDJPY—pennant on daily

In what may be one of my riskier trades, I just went long USDJPY at 90.25. It’s a contra-trend trade, against a strong downtrend so one has to be careful. I would have gone long Friday at the close on the nice daily doji but I don’t take positions at the start of the weekend. This morning I was busy with other things and just got around to this pair. It’s already climbed a bit so it’s not quite as good an entry as I would have liked but there you go. This particular type of doji is called a gravestone doji. How’s that for creepy and bearish? However, the gravestone doji, like most doji, seems to be more effective when it occurs at tops. A couple of things, though, persuaded me there may be some strength coming in this pair.

First, there is a rally going on of sorts. After this low of 84.83 in November, the pair reached a high of 93.77 earlier this month. The daily chart now shows a pennant formation. A pennant is a flag with pointed, converging lines. When a pennant is slanting towards the trend (in this case up), the breakout is often a continuation move. The recent move up also looks impulsive to me. This could be an A wave of a correction and the C wave could end higher than the top of A. Regardless, as soon as I can I’m moving my stop to breakeven.

Resistance is at 90.57 (the high of the doji), 91.35 (the top of the pennant), and 91.87 (January 21 high). Support is at 89.79, 89.23 (January 21 low and fib retracement), and 88.32 (recent low). Here is the daily chart:


© Dianne Fecteau, 2010. 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.