CADJPY Still Providing Opportunities in Big Range

Cory Mitchell, CMT

Since the big decline in early March, the CADJPY has been swinging wildly up and down, hitting resistance above 78 and then plummeting, and then rallying off support found below 74.50. 

Depending on the entry and exit points, the swings have been 4% to 5.5% (a bit bigger, but my goal is never to try to pick the exact top or bottom).

The 4-hour chart shows how this is playing out. 

CADJPY in range on 4-hour Chart April 8 2020
CADJPY 4-Hour ChartTradingView

How I'm Trading CADJPY

  • Waiting for a consolidation (shown below) on the 15-minute chart, at least 4 or more price bars, within the resistance area drawn, between 78 and 78.40.
  • Entering short on a breakout of the consolidation to the downside. 
  • Stop loss goes above the consolidation.
  • Downside target near 78.30. This captures a little less than half of the range.
  • Nearly 8:1 reward:risk.
  • This is the preferred method because we can use a conservative profit target placed above a significant swing low. Yet reward:risk is still favorable.
  • Can also use a stop loss, such as Renko charts or a multiple of Average True Range. 

The above entry has already happened. But there are still opportunities to back in based on price action entry signals. 

  • On the 15-minute chart, over the last 20 hours, the price has been moving choppily sideways, below the swing high mentioned above. 
  • Another high reward:risk opportunity will present itself if the price can rally back to between 77.60 and 77.80, consolidate, and then break to the downside. 
  • A theoretical reward:risk is shown for the trade. Since we don't know where the price will consolidate, or if it will even rally back up to 77.60/80 area, actual trade levels will vary.
  • This is just one scenario. If others pop up, I will try to post an article about it.

If the price moves back to the bottom of the range, the same strategies can be applied to potentially buy in the support area (near 74.50).

Because this big range is so choppy, I prefer not trading it expecting a breakout at this time. The stop losses on these trades are tight, so if a breakout (or false breakout) occurs, the loss is small.  

On big choppy patterns like this, defining a precise breakout level is difficult, so I don't do it. Instead, I will trade the range assuming valid setups occur, and if the price breaks out of the range I do nothing. Once the price has run a decent distance outside the range, we will know the direction of the new trend. With the trend direction known, I can then start looking for opportunities based on trending strategies. 

In this pattern, the only time I would consider trading a breakout of the entire pattern is if we get a triangle pattern or some other volatility contraction pattern near the extremes of the range. That would present a small stop loss opportunity if the price breaks both the small triangle pattern as well as the larger range in one move.

By Cory Mitchell, CMT. Join the discussion in my free Facebook swing trading group.

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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