On February 17 a situation was deliberated where the EURJPY currency pair was in the early stage of a new downtrend with a short position triggered and reached its first target. It is important to emphasize the fact that after a possible set-up is identified, it is critical to work out exactly what the calculated risk will be and just as important to know where the possible targets will be. We have to accept the fact that we do not know what the market will do but we can identify and act on a set-up as defined by our strategy or method and know how to manage any resulting risk accordingly. The advantage of this can be clearly demonstrated in the EURJPY currency pair situation.
After the short position was triggered on February 10 and the first target reached on February 13, a news event caused a dramatic bullish reaction and buyers flooded the market. The market broke through the 15 and 34 Simple Moving Averages and the Momentum Oscillator broke through the zero baseline into positive terrain. In the process the resistance level at 121.152 was broken, the anticipated scenario was invalidated and the short position was liquidated to protect trading capital.
Important to note is the fact that when the first target that was reached and part of the open position closed, this has reduced the remaining open risk.
As long as sellers and buyers maintain an impartial sentiment with neither supply nor demand dominating, the outlook for the EURJPY currency pair on the Daily time-frame will remain neutral.
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