AUD/JPY – Get Ready for Action

Rarely would I look at a chart in such a clear ranging pattern and try to create excitement about it. This chart is one of the rare occasions because I think for traders it has some potentially useful characteristics. One of the reasons that some people find channels dull is that they typically have quite a small range and don’t offer a fantastic risk:reward opportunity which is the thing that will just ruin a traders day. If you take a look at the chart below you can quickly see that there is no issue with that in this particular case:

You can see here how the volatility bands have crept closer together – the price has not been finding much in the way of traction lately – but this is the factor that we are very interested in because I would suggest that there is a breakout trade within a breakout trade here.

I have drawn on here what is essentially a symmetrical triangle. You can see if you look closely that the price has simply been oscillating around the 200 day moving average so that adds to the expectation that price is not really on the move – for the moment at least. The shrinking range around the long-term moving average may be suggestive of consolidation in advance of a breakout.

Now we get down to tin tacks. You can see on the hourly that price has been in a consistent looking downtrend for several days now and we are getting quite close to pressing on the support line. I would suggest that a break of this pattern will make for a decent short setup with a target near the major support line seen on the weekly chart. If we find support at the base of the hourly/daily support then there may be a long side trade available too but I think this is the less attractive option but that’s only due to the lesser risk:reward.

In any case put this one in your watchlist and we will see where we stand in a few days.

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3 Responses to AUD/JPY – Get Ready for Action

  1. Hello David, Please advise what are the volatility bands you are using.I agree very short term it may go up but I would look for shorting to a 79.86 target.I have trouble in setting my enterance point stop points . What do you suggest. Thanks Gary

    • David Land says:

      Hello Gary,

      thanks a lot for reading. I am using a 1.25 standard deviation band around a 200 period moving average.On the entry I think it’s generally safer to allow the price to break out of the pattern and close out there before entry. On a one hour chart though this may be a bit of an issue if the break happens during the night. So you need to account for reasonable volatility so if you had in mind a breakout point then adding 1 x ATR (Average True Range – check Google if you arent familiar with it) to this may be a way to lessen the chance of a whipsaw.

      Please let me know if you would like further clarity on any points.

      All the best,

      David.

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