USDJPY Sell Trade 16 Pip SL 160 Pip TP

In this post I am going to discuss a recent USDJPY short trade. If you have been reading my Forex Robot 2.0 Blog, you must have realized by now that I focus more on risk management than on take profit. I don’t open a trade with a stop loss greater than 15 pips. Even 20 pips stop loss is too big for me. Every trade that I open should make at least 100-200 pips. I don’t try to ride the trends from the start till the end. Did you read the previous post on EURUSD short trade with 10 pip stop loss and 150 pip take profit target? Take a look at the following chart of USDJPY.

USDJPY Short Trade

In the above chart, you can see USDJPY is already in a downtrend. Yellow line which is EMA 21 is above red line which is EMA 55. When EMA 21 is above EMA 55, it is downtrend and when EMA 21 is below EMA 55, it is uptrend. So we have a downtrend. We don’t need to catch the tops and bottoms. I have tried to catch tops and bottoms in the early part of my trading career. Most of the time I would lose. There was no way to catch the top or the bottom. Then I realized that it is always a good idea to let the market turn the top or the bottom. Once you are convinced that the market has turned the top or the bottom, you can plan a trade. You can read this post in which I explain in detail a GBPUSD long trade with 10 pip stop loss and 250 pip take profit target.

Second thing I learned was M30 and H1 time frames are unreliable. H4 and D1 are a bit more reliable. A candlestick pattern on H4 is far more reliable as compared to a candlestick pattern on H1. Nothing is perfectly reliable. A candlestick pattern which look very reliable may not result in a good trade. So we are always guessing. How do we reduce our cost of guessing? We do that by keeping the risk as low as possible. If I have a trading system that has got 50% winrate, it means half of the time I will lose. How do I trade with that system then? Suppose my average stop loss is 10 pips and on average I make 100 pips. So in 10 trades, I will lose 50 pips and I will make 500 pips giving me net 450 pip profit. So you can see even with a winrate of 50% we can consistently make more pips if we keep our stop loss small and take profit target 10 times bigger than the stop loss. You must have heard about the Reward/Risk ratio. I am talking about that. Watch the documentary on how automated trading systems are changing the markets.

In the above screenshot, can you see the bearish candle below the red arrow? This is the entry signal. First an inside bar was made. Then price broke above the high of the inside bar pattern and then again made a bearish candle. So I decided to open a short trade. My entry price is 111.540 and the stop loss is 111.700. This gives me a stop loss of 16 pips. This is the risk that I am taking. As said above, I trade with a reward/risk ratio of 10:1. So my profit target should be 160 pips or 109.880. My profit target is achieved on the third day. There is a difference between the professional trader and the retail trader. Watch these 4 professional trader vs retail trader videos by Anton Kreil in which he explains what makes a professional trader different from a retail trader.

Now it is very much possible that price can go below 108 or even 107 level. It is also very much possible that price retrace and then start falling again. So we take profit and then take some rest. If we get another short trade opportunity we can again open a short trade with a small stop loss. This is how we achieve a profit target of 1000 pips per month. We need patience and discipline when it comes to trading a financial market. The most important question that comes to mind is how do we know this will be a big move and we need to open a trade? Watch this video on how to determine market direction using candlestick patterns.

I use candlestick patterns to determine when to enter the market and how big the market is going to move. Now as said in the beginning of this post. Most of the time I am guess. So I cannot be 100% accurate. Neither are the candlestick patterns. Sometimes a very nice candlestick pattern can lure you into a trade that than easily hits the stop loss. So I need to have a number of rules that increases my probability of success when it comes to using candlestick patterns. Watch these candlestick patterns trading strategies videos first before you continue reading.

There are a number of candlestick patterns that are known as breakout patterns. You need to master them. I have a multiple timeframe trading strategy. First I look at the weekly chart. Then I look at the daily chart. Finally I look at H4 chart. I use H4 chart for making the entry decision. As said above I don’t use H1 and M30 charts for entering the market. I have been clobbered many times in the start of my trading career by H1 and M30 charts. So I don’t view the candlestick patterns on these time frames to be reliable. I have explained this fact in the start of this post. Read this post on a simple trading system that has worked for 7 days.

As a recap, always take risk management very serious. Try to make 100-200 pips with a small 10-15 pip stop loss. One thing that I forgot to tell you is that I always use pending orders. Yes! Pending limit orders give me the chance to enter the market with a precisely measured stop loss. You don’t need to watch the charts all the time. You just need to analyze the charts correctly. Once you have done your analysis, use a pending limit buy/sell order. Now sometimes the pending limit order doesn’t get filled. Don’t worry at all you will get a chance soon to open another trade. Just make sure you take risk management serious and don’t open trades with big stop losses.  Don’t hesitate to revisit my Forex Robot 2.0 Blog once a month for more trading tips.

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