My Binary Trades on 9 October

October 9, 2012

Tuesday’s trade that I’m going to share with you occurred on the GBP/JPY around the 125.45 resistance level. After a period of consolidation earlier during the London session, the GBP/JPY had been in a clear uptrend since 6:45AM EST. However, the 7:40 candle* suggested that the trend was losing its momentum and might be primed for a period of consolidation or even a reversal given that it had run into a resistance zone. From the chart, one can see that the GBP/JPY had attempted to breach the 125.45 resistance area on the 5:45 and 6:15 candles, only to be rejected and sent into short-term reversals.

Being that I didn’t have my eyes on the GBP/JPY five-minute chart during the first new encounter of resistance, I didn’t take the trade. The trade that I would’ve taken here at 125.45 would have been on the 7:40 candle. Price had been rejected from this level once again on the 7:35 candle, making a put option on the subsequent retrace up to 125.45 on the 7:40 candle a solid trade. If you had made that trade on a 10-minute expiry, like those offered at Markets World or Banc de Binary, that would have been a strong winner. If, however, that trade was taken with a 15-minute expiry (e.g., 24option), that would have been a close trade. It looks like it may have won by tenths of a pip, but it would largely depend on where you had gotten in at or how good your fill was (i.e., getting in at the price you requested).

However, the trade that I actually took was on the 7:55 candle when I noticed that the 125.45 level was still holding. When taking this trade, the only factor I was considering was the strong line of resistance at that level. The direction of the trend was an insignificant factor. In a strictly technical sense, it was slightly up over the course of the European market session, but that fact was unimportant to me. I was fairly confident that the resistance would hold at least in the short-term before expiration. About fifteen minutes later, we had just over a one-pip winner.

Now the question becomes, would I have traded this level again when it had gotten back to that level at 8:15AM EST? The answer is no for the main reason that the retrace back below the 125.45 level was very weak. It barely fell five pips below, suggesting that price would be likely to break that level of resistance shortly. When the retrace is weak, it’s usually a strong indication that there’s still some upside pressure on this currency. Sure enough, the retest of 125.45 didn’t hold and it broke through to reach new highs.

In your own trading, if you do take a trade on the touch of support or resistance and it works in your favor, I would be wary of taking a trade at the same level again on another touch, especially if you saw a weak retracement or you’re simply trading against the overall trend, in general.

Please feel free to ask any questions below!

*Note that when I say the “7:40 candle” I’m referring to the candlestick on the chart that opened at 7:40. The 7:40 candle would therefore indicate the price movement between the time 7:40-7:45. If for instance, you are analyzing how a trade on the 7:45 candle would have played out on a 15-minute expiry, you would need to look at the closing price of the 7:55 candle, which therefore closes at 8:00. To my knowledge, this runs uniform across all charting platforms.