For this example, use the Australian Dollar vs the Japanese Yen, AUD/JPY pair. It is showing a strong downtrend and looks like a simple trade. The basic rule for using the 200 EMA is if the price is above the line, it is likely to continue higher if the price is below the line, it is likely to continue lower. The price seems to be moving below the 200 EMA line. This confirms that the price is in a stable downtrend. Please understand that if we are selling AUD/JPY that we are buying Japanese yen and selling the Australian dollar. Therefore, will be looking for JPY strength and/or AUD weakness. Use the MACD indicator to look for a confirmation that the price is ready to go down again. The MACD is not always reliable as an indicator when used alone, but when used as part of a larger trading system it can be helpful to pinpoint a possible turn in price. The price seems to be fighting the downtrend a bit, so look for the MACD lines to cross and head down before trading. Experienced traders have found that setting a stop loss at half the pip amount or less than your take profit level can set you up for long-term success. This is because you can be right less than half the time and still come out at the end of the week, month, year ahead if you have a favorable risk-reward. Setting the stop loss will limit your losses if the market does not move in the preferred direction. Setting the take profit level will make sure that the trade exits in profit once the market makes the downward move that is expected. It can be an advantage to set these levels when you place the trade because once the trade is actually in the market, the pressure can make it difficult to make decisions. Not all trades result in a profit, and you should take measures to limit your risk on any trade.
