Last week’s peak was in the target zone for the shark pattern discussed in DV34’s post last week. With weekly chart setting up for a possible candlestick hanging man, our guest blogger explains why he has entered a short position based on the hourly chart and in advance of tomorrow’s Bank of Japan meeting.
Following on from my previous post on the EURJPY, I believed we had a very long term pattern setting up on the weekly chart that was also backed up by the monthly.
The pattern was called a shark, and the line in the sand for this pattern to remain valid in terms of the 88.6% retracement pattern completion; is either 121.84, or the high of 123.33. If the market breaks these levels then I am wrong and it is time to get out and reassess
Using the top down approach through all of the timeframes again, to keep things consistent
On the monthly we noted the major level back to 1995, I have revised my view to show that there is an equal move present as well, a reciprocal AB=CD pattern shown with the blue lines.
As per the previous post the oscillators are overbought
On the weekly chart we noted the 88.6% retracement Shark pattern, and last week’s candle looks like a potential hanging man that would be completed by a red candle this week.
The 10/20 EMA’s are still quite a bit lower suggesting a window for profit potential, so it still looks ok so far
Interestingly I looked back at the stochastic as it was unusually high, this level has not been reached since July 2007, just as the GFC began….. the RSI is also at extremes.
While I do not consider 70 a major RSI extreme as I know of some traders who built strategies around buying at 70, 80 from my experience can lead to sudden and quick reversals – even if only brief in nature
4 Hour Chart
On the 4 hour, the market has now made a new high however the RSI and MACD (trend following tools) have very clear bearish divergence or loss of bullish momentum.
Price = higher high, Indicators = lower high
1 Hour Chart
The pattern I noted on the 1hour in blue is called a alternate bearish bat, the text book version looks like this:
Given the fact that I am trying to trade a weekly pattern, and that we have the major JPY news on Tuesday I entered short on the pattern completion around 120.00ish and placed my stop based on my weekly view to try and prevent any shakeouts come Tuesdays BOJ statements.
While it is quite possible this 1hour pattern may fail, digging intraday has allowed me to reduce what would have been a huge 280pip stop loss down to a 175pip stop loss, therefore increasing my potential R:R on the trade and decreasing my risk simultaneously
I am sure that there will be very heavy short jpy positions right now, and if the BOJ statements fall short of traders expectations on Tuesday – the unwinding will be quick and severe…
Hope this helps,