Wednesday, March 16, 2011

GBPJPY—daily chart

The Guppy has moved down sharply from its February 18 high of 135.54. The low yesterday was 129.19.

Where might this drop end? The most likely area is 128.86/10. There are several reasons. First, 128.86 is confluence. Second, 1.2881 is a support from the weekly pivot. 1.2832 is the January low. Finally, if one assumes that an A wave began at 1.3554 and ended at 131.13, and the B wave ended at 135.24, then wave C will be 1.618 of A at 128.10. One thing to note is that a broken former trend line comes in below 128 so if the pair is going to retest it that moves support downwards.

If this support zone doesn't hold price, then the next support is at 125.51 so if one tries a long position in the 128 support zone, use a stop that matches your risk tolerance.

Will it go to 125.51 and possibly below? Who knows? There's some evidence it could. For example, on the daily chart below, the break upward, above the trend line, even though sustained for over six weeks, could be a false break. A close below 125.51 would confirm that. One could also argue that the move up to 135.54 was a three wave correction on the daily chart.

Watch behavior, both momentum and price, in the 128 zone if price reaches that level, for clues as to future behavior.

Here's the daily chart.

© Dianne Fecteau, 2011. 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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