GBPJPY—possible long with stop and reverse

I'm leaning long and here's why. We’re near a good support level of 128.00 (yen pairs like round numbers) and near an uptrend line at 129 (another round number). This may only be a correction before further drops but corrections often stay within parallel lines and it could get back to the top of this upward correction. (131.30) The 50% retracement of the most recent down is at 130.73, also a prior high. That's a nothing move pip-wise for this pair. 133.03 is a confluence level and a break above the channel line to here would most likely set off a short squeeze that could push it further upwards. So I may be looking for a long this morning.

When would I know I was wrong if I was long? Certainly below 128.00—so an entry here might carry a bit too much risk for the average trader. One could buy at 128 with a very tight stop (and I do mean tight, i.e. 127.90) but I'd be watching momentum closely at that point. Notice how RSI is coiling within a symmetrical triangle. Stop and reverse would be the probable trade at that point, looking for a retest of 126.44. I have price targets below that from my Point and Figure charts of 121.50, then 120.40, 119.70, and .9990 (gulp).

Here's the three-hour 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.