Monday, January 18, 2010

GBPJPY—still in triangle

This pair is still within its symmetrical triangle. I suspect it will break out of it this week, although probably not today since it’s a holiday here in the states (Martin Luther King day). I’m still short from 149.84.

Symmetrical triangles graphically show the struggle between buyers and sellers. There is no certain direction at this point so the market stalls and vacillates until traders resolve the struggle. While these types of triangles are often continuation patterns, that’s not at all guaranteed. If you believe it’s an upward continuation pattern, no doubt you’re looking at the short-term uptrend from November or even the longer term uptrend from this past year.

It could be but here are some things to consider:

There has been a sideways pattern in much of 2009, just as there has been with the EURJPY. The bottom of the sideways pattern is 139.03 in the spring of 2009. The pair then climbed, making a double top at 162.60/163.09 in June and August of 2009. The trough of that double top is 146.77 and the pair broke below it in September to a low of 139.71. The price target from that pattern was 130.45 (Peak to trough subtracted from trough or (146.77 – (163.09 – 146.77)). Clearly, it didn’t make it but these things aren’t guaranteed. In addition, the target isn’t always achieved in one grand move—that is, it can vacillate and stall….Since the 139.71 low, it retraced somewhat over 50% of the decline from the top and then began to falter, leading, finally, to this triangle. If this is true, then perhaps there is more significant decline to come until it reaches the price target of 130.4 Placing this within the context of the weekly chart, one sees that the sideways pattern formed after a sharp downtrend from 2007. One could argue that the downtrend led to a long sideways consolidation period, during which the market is catching its breath before continuing its slide. If this is so, this little triangle is truly insignificant. However, the probability is that the trend will continue down.

From the weekly chart, one could also make the case that the pair is basing and that this is a second wave correction after an initial move up from the lows of 118.83/119.72. If so, this triangle is probably part of that and the move will be up.

My point of all this is to show first, that looking in the larger context can give perspective to things, and second, that you don’t really know what a pair is going to do at any given time. However, that leads some traders to tear their hair out and gnash their teeth. I don’t know why it should. With this kind of scenario, find good entry points and keep at least a portion of your trade on, until things become clearer. One thing I can promise is that things will become clearer, especially when the pair breaks out of this triangle.

Meanwhile, I’m staying in my short until taken out at which time I’ll evaluate the market again. Here’s the daily chart:

© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

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