USD/JPY ascending wedge formation analysis, basics.
Whats going on
Ascending wedge pattern
Resistance (red) line drawn at the highs
Support (green) line drawn at the lows
The angle of the support line is much steeper than the resistance line.
What does this mean?
Buyers don't have enough power to create significantly higher highs. Sellers keep pushing the price away from the resistance line.
Because of this we can expect buying power to soon run out and the sellers to push price past the support line, which is what happend.
How to trade this?
Wait for a break of the support trend line (set an alert by clicking the line, then set an alert)
We know it is broken when a candle (1H for example) closes below the trend line, and by some margin.
Let the price drop.
Look for a previous support zone (the white zone) where price bound off previously. Basically it couldn't easily pass the zone or close above/below it. That's why see some long wicks going through it.
Let price close past the zone (look at the purple arrow)
Once it closes below - set a sell limit order at a price in the white zone.
Set the stop loss above the zone - a good example is just above the previous rejection wick (yellow arrow)
Have a plan of when to take your profit - in this example I used the previous swing lows inside the wedge pattern. You can see at "take profit 2" level the price hovered around this point and tried to break above before moving back down.
The white line shows the "price action" where it clearly breaks the support line, retests a previous support/resistance line, cannot close above it and forms classic rejections candles (long upper wick, body at the bottom of the candle) and therefore continues downward.
Ascending wedge pattern
Resistance (red) line drawn at the highs
Support (green) line drawn at the lows
The angle of the support line is much steeper than the resistance line.
What does this mean?
Buyers don't have enough power to create significantly higher highs. Sellers keep pushing the price away from the resistance line.
Because of this we can expect buying power to soon run out and the sellers to push price past the support line, which is what happend.
How to trade this?
Wait for a break of the support trend line (set an alert by clicking the line, then set an alert)
We know it is broken when a candle (1H for example) closes below the trend line, and by some margin.
Let the price drop.
Look for a previous support zone (the white zone) where price bound off previously. Basically it couldn't easily pass the zone or close above/below it. That's why see some long wicks going through it.
Let price close past the zone (look at the purple arrow)
Once it closes below - set a sell limit order at a price in the white zone.
Set the stop loss above the zone - a good example is just above the previous rejection wick (yellow arrow)
Have a plan of when to take your profit - in this example I used the previous swing lows inside the wedge pattern. You can see at "take profit 2" level the price hovered around this point and tried to break above before moving back down.
The white line shows the "price action" where it clearly breaks the support line, retests a previous support/resistance line, cannot close above it and forms classic rejections candles (long upper wick, body at the bottom of the candle) and therefore continues downward.