Hello traders, Thanks for taking the time to read my analysis, please give a thumbs up if you like my idea!
On the chart it looks like we have a rising wedge on the 4hr time frame. The price just wicked up to the 200MA (in orange) which also happens to be at the top of the wedge trend line.
Looking at the bottom of the chart we can clearly see that volume has been drying up which is common in these rising wedge patterns. We can also see the CMF has been dropping since the first bullish impulse, despite higher highs being made in price. The same thing is occurring on the Sentiment Index.
Finally, we see a slight bearish divergence developing on the RSI. I am using the RSI exhaustion indicator which lights up green with bullish exhaustion and lights up red with bearish exhaustion. As you can see we have been in bullish exhaustion for some time now which typically leads to a drop. However when using this indicator it is important to wait for the green to then disappear as this shows the bullish strength has come to an end and price will finally break to the downside.
If we get confirmation on RSI exhaustion as well as a break down the bottom of this wedge, we can expect downside over the next few days. I am targeting the 0.618 fib level to take profit. My stop loss is about 10 pips above the top of the rising wedge.
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The bulls were strong on this pair yesterday and broke through the top of this wedge quite easily. The RSI exhaustion indicator never saw the green disappear and so I never got a signal to go short. However, now we are seeing the indicator showing bullish exhaustion has completed and should see some downside. Currently we are still technically in a rising wedge, though a new one has formed from yesterday's. I will short this pair with a small lot size only if we break the bottom of this rising wedge. We can see the Stochastic RSI has also crossed over and is heading down which gives me a little more confidence that this could broke below. If we get the breakdown, I'll be targeting the 0.5 Fib level.
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So far, so good!
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Update on GBPJPY. As you can see on the chart, the price has bounced from the ascending black trend line which has been formed from the reaction lows of this broader uptrend, as well as the 0.5 broad fib retrace (in red). That was where I closed out the order as I did not see the price making lower lows towards my initial target. The price is bound to continue to move up from here and I will be buying the dips from here on out and not shorting unless I get signals of a drop. With that said, there is strong resistance right above at the red rectangular zone I drew on the chart. Additionally, if we break out above this resistance and make another bullish impulse up then price will eventually have to deal with the descending red trend line which is a trend line formed from all reaction highs starting Jan 2018 onwards (check weekly view). I will update as things progress.
Hey man, I like your indicators how do I get that sentiment index, rsi exhaustion and cmf indictor? thanks!
tommyf1001
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@xsimon1, Hey thanks for asking. The CMF indicator is free and you can add that from your indicator list by typing CMF. The Sentiment Index and RSI exhaustion are not free however, they are provided by Minimalist Trading and you have to pay monthly for their indicators. You can contact them and see if they're willing to grant you access for a free trial. I like to use sentiment index for divergences as well as any shifts in momentum for sideways markets. The RSI exhaustion oscillates exactly like standard RSI however this indicator shows green when bullish exhaustion is starting and red when bearish exhaustion is starting. I like to wait for the green/red to then disappear which helps signal the reversal is beginning (but wait for at least 1 candle close first once the color disappears, as the color can reappear if price makes opposite move)