GBPJPY—Friday doji

The Guppy dropped to a low of 130.67 on Friday, closing the day with a dragonfly doji. This can be a bullish signal as it means price had lower lows but price closed at the high of the day. Usually, though, it is more bullish if it occurs after a rise in price rather than a drop. Price has been dropping since the May 31 high of 135.14. One could view it as a hammer since there has been a drop in price. Price in the 130 area has served as support on several occasions and 130.29 was the low for May. The combination of the doji and being at support is enough to say that if price drops below 130, there may be further weakening. However, one could take a long position below 131with a stop below the doji. I will be watching momentum on the shorter time frames (4- and 1-hour) to see if I want to get into this trade.

If price manages to rally, resistance is close by at 132.77 (June high) and 132.95/133.03/133.25, the 20- and 10-weekly EMA and 100 daily SMA respectively. This is also near a round number. After that is 134.32 and 135.14, the high for May.

Here is the daily chart:

© Dianne Fecteau, 2011. 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.