Trade #10 was on the USDJPY currency pair. At point A, there were wild price swings after the CPI figures came out of the US, which showed that CPI inflation slowed but the monthly inflation rose. There was a widespread up bar on ultra-high volume. The volume was the biggest on the chart. As we continually say that weakness appears on widespread up bars with ultra-high volume. This time around, things were different.
To confirm the weakness, the very next bar needed to be a down bar, but we got an up bar which was also on ultra-high volume. This bar confirmed that there was buying. Prices retraced a little but continued higher until we got a sign of weakness at the high of the ultra-high volume bar. This weakness caused prices to flatline.
At this stage, Smart Money want to determine if there are sellers in the market and they do this by marking the prices down. At point B we see this happening and we see a sign of strength “Test”. The next bar was an up bar which confirmed the test bar and this is the 2nd sign that there is strength.
Why Not Enter USDJPY On The Confirmed Test?
Could we have entered the trade at the confirmed test? We needed a few more things to set up before we entered the trade. Firstly we required trend alignment to the upside, which we didn’t have in this case. Secondly, I especially like the price to clear the high of the ultra-high volume bar and then look for signs of strength. That is what we go at the right edge of the chart. We had another test which was confirmed.
As you can see from the chart above the bulls were in command. Then we came into another up bar on ultra-high volume, but this time it was widespread and there was a sign of weakness. This weakness was not confirmed and the price continued higher on decreasing volume which had us concerned. So we moved the stop to the high of the ultra-high volume bar because prices were starting to mushroom over. Let’s take a look at what happened after we exited the trade:
The currency pair retraced and changed trend, so it was a wise move to move our stop to where we did.
Trade Outcome
Entry Price: 133.391
Stop Loss: 134.085
Take Profit: 136.600
Exit Price: 134.085
Profit: USD $519.39
Trade #9: NZDUSD Bottom Reversal – click here to view
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