April 24, 2008

A Perfect Forex Breakout On The USD/JPY This Week

If you want to see an example of a perfect forex breakout, take a look at a 4 hour chart of the USD/JPY. 

Add EMA (5) and EMA (20) indicators to the chart and you will see that from mid-Monday onwards this currency pair was hardly moving. Both these indicators had totally flattened out and were extremely close to each other.

This usually only means one thing - a significant breakout is imminent.

I was anticipating an upwards breakout because the daily Supertrend was green indicating we were still in a bullish trend, and this is exactly what happened.

The price moved up strongly late yesterday afternoon, as did the EMA's, and I waited for a pullback before taking a long position at 103.34. It took a while but I eventually managed to close out the entire position at 103.92, although it subsequently surged through 104, but it was a decent enough profit.

Anyway the main point is that these occasions when the EMA (5) and the EMA (20) both flatten out and trade very close to each other are excellent signals that a breakout is about to take place.

You can make good profits waiting for these times of consolidation and trading the subsequent breakout. It's often just a case of waiting for a slight pullback to the shorter term EMA for a chance to jump on board and ride the trend.

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