This week I will be watching for a potential Forex trade setup in the GBP/JPY currency pair. I say “potential” because I will still be watching for price action at the level that I set on my chart. For weeks, I have been watching this level, so hopefully, the market will cooperate on this trade. All the trades that I place, including this one, are rules-based.
Rules Based Forex Trade Setup
Our rules-based approach to trading the GBP/JPY Forex pair will be straightforward this week and covered in five easy steps.
The first step is to set the level on your chart. I have had this level marked on my chart for weeks.
Next, you wait for price action near the zone that you placed on your charts. There are about three or four candles that I will be watching.
Three Candle To Validate Forex Trade Setup
The three types of candles I will be watching this week are the bearish engulfing candle, the hanging man candle, and the inverted hammer/pin bar. I included examples of what each of these candles look like in my video this week. All three of these candles are equally important and may show up in a pattern made up of multiple types of these candles or as a single candle. If the market gives us the candles that we are looking for and the price closes below the previous candle’s lower body, we can enter the trade short.
Setting Stops And Target For This Forex Trade Setup
Your third step is to set the stop-loss on the trade once you have entered it. You should place the stop-loss above the most recent high plus a few pips. As I am writing this, there is no way to tell if the current high will be the swing point that we will be using or not. The market could trade a bit higher before we get our price action candles that I will be expecting.
Next, set the take profit. One of the rules I follow is to make sure the profit is set at least twice the stop-loss amount. What I mean by this, is if we have a two hundred pip stop-loss the take profit must be four hundred pips. If the profit level is beyond a support level, this will invalidate the trade for me.
Your fifth and final step is to move the stop-loss to breakeven if the market moves in our favor by two hundred pips. You may be asking why two hundred pips? Because two hundred pips is the amount of our stop loss amount.