The USDJPY is printing a potential wedge on the day chart as well as inverted head and shoulder in the 4-hour. It is critical to confirm with break of neckline or breakout of wedge.
Potential reversal patterns for USDJPY
On January 29, 2010, In Technical Studies, By Soh Tiong Hum
On January 27, 2010, In Technical Studies, By David Yew
Today, we shall excite ourselves by looking at one of the most volatile currency pairs, GBP/JPY, which has a daily average fluctuation of about 300 pips.
In addition, we shall see how 3 chart patterns that is very evident on GBP/JPY for trend reversal and trend continuation – namely, rising wedge pattern, pennant and symmetrical triangle pattern.
GBPJPY Weekly Chart with Chart Patterns
As shown on the chart above, the Bearish Trend Reversal started with the rising wedge formation, which later evolves into the famous Head and Shoulder pattern hinting towards a big bearish reversal move underway.
Afterwhich, every subsequent retracement of the downtrend has either a rising wedge pattern or a bear pennant pattern.
Thus, it goes to show that there is a high reliability of trend continuation when either patterns had formed.
As we observed the recent months, that there is a big rising wedge formation which seems to be forming since 2009, and a symmetrical triangle forming shortly.
As price draws nearer to the apex of the symmetrical triangle, a breakout is inevitable. Yet, will it be a another trend continuation or a bullish reversal?
Should it break out of the pattern to the bullish side, then more bullish sentiment will be added to the equation as many traders will be eyeing for trading the breakout.
Likewise for the breakout to the bearish side, whereby more shorts will be added too.
Whichever the breakout is to be, it will likely to be a big move, so it is worth keeping tabs with this volatile pair in the coming future.
On January 21, 2010, In Technical Studies, By David Yew
Chart patterns are commonly found for almost any price charts. It is more visual when view using a line chart than candlesticks or price bar chart.
As each price bar forms, it may give the chartist a perspective in relation to the formations showed by the historical bars.
Today, we shall dissect a 4 Hourly chart of CHFJPY to understand how patterns can form and perhaps to take advantage of the formations for trading.
As shown above, it is evident that CHFJPY has finished a Head and Shoulders Pattern which is a Bearish Reversal of the previous Up trend. The Up trend happens to be at the ‘armpit’ of the Left Shoulder and Price break down the trendline, indicating the Head is formed. With the falling price, buyers wanted for an entry and attempted to push the price higher, thus forming a pullback.
But it goes to show that more are keen to sell than buy, and after several attempts to break above the up trend line, there is a sharp plunge which is forming the Right Shoulder.
On the same chart with the Head and Shoulders pattern, the keener eye might find more patterns within the Head and Shoulders!
- Left Shoulder was a Double Top formation and Price found a support line to bounce off and overcome the top of the Left Shoulder to form a Higher High (Head).
- After the attempt to make the Higher High, a bearish engulfing candlestick pattern formed resulting a possible price fall as seen on the chart.
- A support / resistance line provide another bounce back with price forming a rising wedge pattern, it also an attempt to test the up trendline and to break it to the bullish side. Along with the evening star candlestick formation, the bearish reversal was like a quick runaway to sell down CHFJPY.
- After a break below the support line, it seem to consolidate and wanted to move up above the support line, yet, the failed attempt results another dive for CHFJPY.
It is easy when we analysis charts in hindsight, when the formations were already there. It is a challenge for us to make sense of the charts as the days goes by. But after knowing a possible formation is underway, you can be sure many chartists who see it will want to ride it.
What we see for CHFJPY is on a 4 Hourly chart, which the above patterns were forming as the weeks goes by. It also shows that when the bullish sentiments of the Big Boys faded, the bearish reversal can last for a long time before another big move comes.
On January 15, 2010, In Technical Studies, By Soh Tiong Hum
In previous postings, we discussed the elements of a good signal. This week we see such a combination unfold before us in the EURYEN. Lets recall.
A good signal has the following:
1. Resistance level provides a ‘hard’ place for price to reverse
2. A chart pattern hints at reversal
3. At the critical point, a candlestick pattern can be seen
4. All of the above come together in a confluence ultimately confirmed with trend line break
Let’s good at the EURYEN chart.
Firstly, the daily chart provides the ‘hard’ place to start looking for a reversal.
Daily resistance hints at reversal
At the 4-hour chart, we can other elements fall in place.
- The violation of the first trend line shows the end of the predominant trend
- A price pullback after the first trend line break hints now a head and shoulder pattern
- A second (shorter) trend line can be drawn to indicate the trend of the pull back
- A big evening doji look-alike bar that violates the second trend line shows the breakdown of the pullback
- Finally the violation of the neckline confirms the head and shoulder formation
Head and shoulder in EURYEN at resistance
Some previous postings
Elements of a trade signal
Reversal signal also shown in Loonie
On January 4, 2010, In Technical Studies, By Soh Tiong Hum
The charts show a potential reversal of fortune in the EURUSD and USDJPY.
The USDJPY hourly chart plots a double top that has broken its horizontal support. While this is traditionally a reversal chart pattern, confirmation has to come from another chart – the 240min. In this case, an upward trending support is clearly visible and this has not been violated.
A double top in the hourly chart shows resistance over 2 days whereas a trendline in the 4-hourly chart is a multi-week support.
Double top in the hourly chart
As for the Euro, a potential head and shoulder patten is now clearly visible awaiting confirmation by breaking the neckline. A break and throwback play is now the prudent strategy.
Inverted head and shoulder awaiting confirmation
If both reversals materialise, we are looking at a retracement move in the Dollar.
On December 29, 2009, In Technical Studies, By Soh Tiong Hum
The Aussie completed a Head and Shoulder pattern and broke its neckline before Christmas. Now it is making a pullback move to test resistance. If the neckline makes a successful resistance, the H & S pattern will remain intact and its validity as a reversal pattern is confirmed. If the neckline is defied, there is a chance that the initial neckline break may be a bear trap and that Aussie will resume an uptrending move.
Aussie making pullback to test resistance of neckline
On December 13, 2009, In Technical Studies, By Soh Tiong Hum
Chart patterns provide a good way to figure out the direction of the market. A good chart pattern offers the following clues to the trader:
- Hint of market direction
- Criteria for confirmation
- Early trade signal
All in all, its qualities are predictive, pre-emptive.
Let’s look at Aussie this 2 weeks to see if clues were left for traders.
From left to right:
- Week 49 printed a ‘Head and Shoulder’ formation (solid blue line); this is a strong hint of a bearish reversal.
- Neckline (A) provided the confirmation of the H & S formation which acted as a pullback resistance at point (1).
- By Friday 04 December, a more obvious H & S formation was formed with the adoption of the dotted dark blue line; confirmation provided by neckline (B).
- Tuesday and Wednesday of Week 50 printed a Double Bottom formation; confirmation came on Thursday with the break of the horizontal resistance (C).
- Rather than play ‘breakout’, point (3) was a very good throwback level to go long at support.
What to look out for next week?
A horizontal channel reveals levels support at [E] that has broken on the down side. So the opening move of Week 51 could be a test of resistance at [E] and support at [F]. Price takes the path of least resistance so the integrity of both levels may provide clues for the middle of the week to come.
Aussie Dollar chart patterns
On November 28, 2009, In Technical Studies, By Soh Tiong Hum
Big moves in the major pairs and crosses were made between Thursday and Friday (26 – 27 Nov 2009). This is a worthy incident to look at and learn from. Lets recall the incident:
- The pairs involved made moves that exceeded their usual daily range
- They show a sudden return of risk aversion
- The Japanese finance minister used the word ‘abnormal’ to describe the market
- Analysts quickly associated the move with stock market sell-off in Dubai; some said it is a blip while others say it ‘has legs’
From a technical point, there are signs of a risk aversion move in currencies prior to the sell-off but the charts also show confusion.
Let’s look at the GBPUSD.
- A fall in the GBPUSD is a risk aversion move
- Sterling was resisted by a 6-month level at around 1.67~
- From the day chart we can see at least two failed attempts to break out
- By Thursday 26 November 2009, GBPUSD was resisted and suggested a right shoulder of a Head and Shoulder chart pattern
- The Head and Shoulder chart pattern is usually read by chartists as a reversal pattern
- This chart pattern can be clearly read in the 4-hour chart
- By Friday, price has fallen through the ‘neckline’ on the 4-hour chart; falling below the neckline is a confirmation of the validity of the pattern
- However a long tailed doji or ‘hammer’ look-alike candlestick quickly reversed the move and the neckline was unable to serve as resistance
- The day chart shows what looks like a failed break
In other words, was there a true panic and reversal? Has this been replaced by regret and remorse?
—
CNBC 27 Nov 2009 – Dubai Debt Woes ‘A Blip’, Won’t Lead to Global Fallout: Strategist
CNBC 27 Nov 2009 – Dubai Stock Market Fear Has ‘Legs’: Dennis Gartman
Marketwatch 26 Nov 2009 – Japan finance minister: forex moves ‘abnormal’
—
Strong resistance for Sterling
Was this a breakout? Is it a bear trap?
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