EUR/JPY - Speculating on Future Direction Using RSI Reversals

FX:EURJPY   Euro / Japanese Yen
305 2 2
January offered a picture perfect example of how to use Cardwell's RSI reversals to determine price targets. A negative reversal provided us with a 140.29 target which was only a couple pips below January 20th low of 140.32, and was triggered nonetheless a week later.
Now, the reverse situation may be occuring with positive reversal stemming out of today's fall to 139.2 yielding a target of 141.41. If the current upward channel is respected, we can even attach a time target of January 26th.

Although RSI is also showing bearish divergence, bullish divergence in January tells us that we can still see one or two more legs higher before a reversal.

This scenario is alive so long as C is not broken on the RSI line.
If I understand correctly this indicator is for a small range trade
and does not pick up the big trends thus leaving a lot of pips
on the table. ?
What is the % reliability for this indicator ?
It would probably have to be very high as it also does not
seem to occur very often ?
Thanks for your thoughts !!!!
PFFXCAPITAL dojitrader
Hi, RSI is the indicator. This is rather a technique which interprets RSI action against price action, as divergence does, only it works the opposite way and offers the possibility to generate target levels.
In terms of picking up trends and leaving pips on the table, it depends how you choose to use it. If you use it as a continuation tool like we did in this example, it will be useful as a way to enter an existing trend and have an initial target in place. But you can use it as a reversal tool and use the target as a contrarian entry and then ride it (in this case we would put on a short limit around 141.4 for instance). So it's up to the trader really, but keeping in mind that we often see reversals co-jointly with divergences, we would not generally keep a trade open past the calculated target if we chose the first option.
The objective % reliability is impossible to establish obviously but we've seen decent results over the years, it's just a matter of isolating the proper pattern. Also, it is not advised to use it with timeframes below 4H and works best with Daily, which is why you don't see it that often.
Hope this makes sense.
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