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Video Transcript:
Hey everyone, it’s Dale here with a new video from the Trade of the Week series. In this video, I want to talk about a trade that I took on USD/JPY. So, let’s take a look at it.
What you’re looking at is the NinjaTrader 8 platform with my custom-made Volume Profile and VWAP indicators, and you are looking at a daily chart of USD/JPY. The reason we are looking at the daily chart is that this trade was a swing trade, and I do all my swing trading on daily charts because I want to see the bigger picture.
Now, let me show you the reasoning behind the trade. What I looked at was this strong uptrend on USD/JPY. It was actually reaching new highs here—almost all-time highs—and I wanted to see how volumes were distributed within this uptrend. I wanted to trade pullbacks from heavy volume zones because I’m not just chasing the trend as it develops. Instead, I’m waiting for pullbacks to get better entries.
What caught my eye here was this heavy volume zone. This heavy volume zone, along with the previous one, represents places where buyers were adding to their long positions as they were pushing the price higher and higher. The concept behind this setup is simple: you wait for a pullback, and when the price reaches the beginning of a heavy volume zone, you go long because the market is in an uptrend. The buyers from this area should defend this place. That’s the logic behind this setup. I call it the Trend Setup because I trade it only when there is a trend.
There were a couple of other things that I liked about this level as well. First, take a look at this sharp rejection of higher prices. See how nicely the price reacted to this level in the past? It also reacted here. Not exactly at the level, but very close to it. When the price eventually broke above this level, the previous resistance turned into support. This is a classic price action setup that I like to combine with my Volume Profile setups. As you can see, this former resistance turned into support and aligned nicely with our heavy volume zone.
Another thing that added strength to this level was this small Fair Value Gap. It’s only a small one, but it still adds confluence to the setup. The beginning of the Fair Value Gap was exactly at our level. For all these reasons, I believed this was a good place to go long, so I placed my limit order and waited for the pullback.
Now, let me talk about the stop-loss and take-profit placement.
My stop-loss was here, at 159.72. My main rule for stop-loss placement is that it must always go behind a barrier, and in this case, the barrier was the heavy volume zone. This heavy volume zone should protect the trade, so the stop belongs behind it.
As for the take profit, it needs to be at least at a 1:1 risk-reward ratio. This blue line you see here represents the minimum take-profit level. However, I usually try to get more out of my swing trades—typically somewhere between a 1.5:1 and 2:1 risk-reward ratio.
In this trade, I took profit here. The reason was that there was a rather strong bearish Fair Value Gap. Let me remove these drawings and show it to you. Here it is. This was the bearish Fair Value Gap, and its beginning was right here. I was afraid it could act as resistance and that the price could react there. It did react there, although only slightly, before continuing higher. Still, I didn’t want to risk giving back the profit if a larger reversal developed, so I exited the trade here with roughly a 1.5:1 risk-reward ratio.
That’s how this trade played out.
By the way, I publish all of these swing levels for our members. They can see my trading levels directly on their charts using my custom indicator, so they can trade these setups alongside me.
If you’d like to join us, just visit my website at traderdale.com. Click the Trading Course and Tools button, and it will take you to the page where you can browse my educational and indicator packs.
We’re currently running a special sale, so you can get the packs individually or scroll down to grab the special Combo Pack, which includes all four packs at a discounted price until July 10th.
Thanks for watching the video. I hope you enjoyed it, and I’ll see you next time.
Until then, happy trading.
