AUD/JPY: How to Use Support and Resistance

When trading currency pairs like AUD/JPY, understanding and applying support and resistance levels can be the key to unlocking successful trading strategies. The AUD/JPY pair, which represents the Australian Dollar against the Japanese Yen, is a popular choice among forex traders due to its volatility, correlation with risk sentiment, and connection to commodities.

In this article, we’ll explore how to identify and use support and resistance levels effectively when trading AUD JPY exchange rate.

Understanding Support and Resistance

Support is a price level where demand is strong enough to prevent the price from falling further. When AUD/JPY reaches a support level, buyers usually step in, leading to a potential rebound.

Resistance, on the other hand, is a level where selling pressure tends to overcome buying interest, causing the price to reverse downward. These levels form due to historical price action and psychological behavior in the market.

Support and resistance zones are not always exact price points; they often exist in ranges. The more times a level is tested, the stronger it becomes.

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How to Identify Support and Resistance in AUD/JPY

There are several methods traders use to pinpoint support and resistance levels in the AUD/JPY chart:

Horizontal Levels

The most basic method is identifying historical highs and lows. Use a line chart or candlestick chart and mark previous turning points. For example, if AUD/JPY reversed from 95.00 multiple times in the past, it likely represents a strong resistance zone.

Trendlines

Drawing trendlines that connect a series of higher lows (in an uptrend) or lower highs (in a downtrend) can act as dynamic support or resistance. These lines can help visualize the direction and strength of the trend.

Moving Averages

Popular moving averages like the 50-day or 200-day can serve as dynamic support or resistance. In trending markets, price often pulls back to these levels before continuing in the direction of the trend.

Pivot Points

Pivot points and their associated support and resistance levels are widely used by day traders. These are calculated based on the previous day's high, low, and close, and can provide intraday signals for the AUD/JPY pair.

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Trading Strategies Using Support and Resistance on AUD/JPY

Once support and resistance levels are identified, you can build various strategies around them. Here are two common approaches:

- When AUD/JPY breaks through a well-established resistance or support level, it often leads to strong momentum in the direction of the breakout. Traders can enter on the breakout and set a stop-loss below the broken resistance (or above the broken support), targeting the next key level.

- If AUD/JPY is moving sideways within a clear range, traders can buy near support and sell near resistance. This strategy works well when the pair lacks directional bias and volatility is contained.

Trading AUD/JPY with support and resistance can significantly enhance your decision-making process. By identifying key levels, watching price action signals, and managing risk appropriately, traders can capitalize on the pair's unique characteristics and volatility.

As with any trading strategy, practice and experience are vital. Use demo accounts to test your approach, and continue refining your understanding of how AUD/JPY behaves at different support and resistance zones. With discipline and analysis, these technical tools can become a cornerstone of your forex trading strategy.

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