Nick Nasad
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CAD/JPY Follow-Up: After Pullback, Pair Breaks Down with Impressive 140 Pip Move

Yesterday night, I wrote about the CAD/JPY and the chance of a bearish set-up in the pair. Here's a follow-up to that trade.

While I can't do it for all the set-ups, I do want to be able to go back and see how things worked compared to what we had "gamed out". Looking back at your set-ups, and thinking through the execution of your trades is very important to helping you to minimize mistakes in your trading. In any case, here we go.

1. This trade set-up started with the 3rd rejection at the 200-ema and anticipating a test and break of the speed line (in brown, connecting 2 local highs). One could short right after the rejection of the 200-ema, which carries the least risk, but means you are acting before any other real confirmation.

Next, we saw the break of the upward sloping "speedline", a move back down through our recent range, and a pierce of support at 93.60. That gave us some confirmation of bearish impulse, but them the concern that support holds and the pair moves back into the range.

2) Lo and behold, the pair did find support near 93.55, and pushed back into the range, exposing weak shorts with stops that were within pretty much the bottom 2/3rds of the range. If someone's stop was above the 200-ema or the 94 handle, then it would be OK, but risk management here will pretty much decide the fate of the trade. If someone doesn't have a position, this pullback presents an interesting opportunity to look for reasons to sell.

3) We get some extra confirmation of the bearish momentum as we have a 21/55 EMA bearish cross. It's not that helpful considering the 2 medium-term EMA's have been "braiding" and crossing each other frequently recent, but as the 21 and 55 start to widen out, the market direction is becoming more bearish and a possible trending action then may come about.

4) Well, after the 93.55 support cracks again, we push down towards 93.25 and retrace back to our old level of support turned to resistance - the old "second-chance break-out entry" trade. As momentum picks up, and the 21 and 55 widen out further, the 93.25/20 area gives way, and we can look at our measured move projections for some further downward targets. (The light blue trendline is a bit more conservative whlie the dark green trendine is the full swing from 95 down to 93.25 - 275 pips.)

Well, there's the anatomy of that trade. The exit does depend on your own trading approach, but there are some signs of bottoming out - the RSI and Stoch at oversold for instance, plus we've already moved 140 pips from top to bottom.

I have to take a look at the pair and most JPY crosses from some higher time-frames for what's next, but from today's action, the JPY bulls have showed some strength.

- Nick