By John Sheridan, Trade With Precision
My personal favourite trading opportunities tend to be when there is an opportunity to participate in a higher timeframe trend using a lower timeframe entry.
I personally seek out the opportunities when there is strong price action across multiple timeframes and the higher timeframe is at the early stage of a new trend forming, leaving plenty of room for the trend to progress. AUD/JPY is currently showing all of the things that I like to see in terms of the bigger picture, as well as the potential for a setup on the daily chart.
Looking at the monthly chart below, the outlook has begun to transition from bearish to bullish. Since putting in a lower low in March 2020, the price has since made a higher high, followed by a higher low and then a further higher high. This trend on the monthly timeframe appears to be supported by bullish convergence on both the MACD & RSI.
On the weekly chart, the price action appears positive. On this timeframe the momentum is to the upside. The moving averages (MA) have just moved into the bullish ‘fanning’ pattern, with the faster MAs over the slower ones, all moving in the same upward trajectory.
Moving down to the daily chart, the price is in a smooth flowing uptrend with a clear series of higher highs and higher lows and once again the moving averages are displaying the bullish ‘fanning pattern’, although this time it is well established. As for the MACD and RSI, whilst they are a little flat, there doesn’t appear to be clear divergence at this time, implying that this trend could have momentum left in it. Price has become over-extended from the MAs, so whilst there is not an immediate trading opportunity a pullback could well provide a low-risk entry.
I will be looking for a pullback to the zone around the 10 and 20 period MA and then for a bullish reversal candle to form. A break of the high of the reversal candle would be my signal to enter a long position with a stop loss placed below the swing low.
Whilst the price action on the daily chart is strong, what I like most about this pair is the fact that the monthly timeframe has just confirmed a new uptrend, suggesting the potential for a larger move.