Good hidden divergence trading setup on EURJPY 26 July 2013

This post is a back test which is for learning process only. I could not write the post when price still running because I have to manage and take care of my own trading. I hope this post can give a better visualization for future trading setup using hidden divergence strategy. Starting from early morning of 26 July 2013, EURJPY has made a strong down trend. This down trend was confirmed by the price moving below 50 EMA on M15 time frame.

This strategy is to follow the trend with hidden divergence confirmation. The stop loss should be placed few pips above the previous high (on a down trend). My suggestion is to put the stop loss a bit wider because sometimes price made a spike and hit your stop loss if you put it too tight. I usually put the stop around 20 pips because 20 pips with 0.1 standard lot is my risk on every position I took. I don't want to lose more than 20 dollar on each trade.

I also do not use Take profit when I am in front of my laptop. I will manually move my stop loss when I am floating in profit. By doing this, I can maximize my profit. I move my stop loss to break even when I am in 10 pips winning position. By doing this I can minimize my losing chance.

 

Ok now take a look at the price which broke and traded below the 50 EMA (purple line). When you see this condition, its highly recommend to trade Short only until we see a clear bullish divergence where we stop to SELL. The first hidden divergence is the most accurate signal on a downtrend we won't miss it.

On the chart above, price has made a nice down trend. EMA 50 sloping down and the candles were below the 50 EMA line. Since we want to trade hidden divergence, wait until price retrace up but it still below the previous high. In other word, price must be lower high. Then check if Stochastic already made a higher high. You can start opening SELL on any resistant area, upper Bollinger Bands or you may use a trend line break to open the position.

The next first thing to do after opening a position is to put the STOP LOSS. Put it 20 pips when we use M15 time frame. On my own experience, 20 pips on EURJPY is good enough to get 1:1 risk reward ratio. If you like, you can set 20 pips for the target.