As twitted yesterday (See: "TNX reached forecast support last month; now threatens loftier rally - Watch USDJPY" here: twitter.com/4xForecaster/status/484515622290595840), a discreet break of overhead resistance indicated a potential rallying to new highs. This comment concerned a simple analysis of the benchmark 10-Year US government bond (TNX) relative to the current positively correlated Japanese pair.
PATTERN ANALYSIS:
Pattern traders might possibly perceive three patterns therein - One distinct bearish Cypher and two Bearish Sharks, one of which completing at the 0.886 of its zero-X bearish impulse leg, and another potentially completing at its 1.131 of that same bearish leg.
The Shark typically comes with an acolyte in the 5-0 pattern, which complete the entire zero-X-A-B-C-D move at 50% of the B-C leg.
TRENDLINE ANALYSIS:
The recent breach of a bearish trendline did recently provide a clear visual indication of the bull's intent to own this pair. Therefore, in the most immediate time, I would be glad to see a conversion of that trendline from a once resistance to then-support before exposing a more bullish position, especially as the 4-hour break-out candle might possibly be followed by a consolidation event giving time for the market to absorb this directional conversion.
Whether a validation of the trendline as support occurs or not would not diminish the bullish directional sign of the market, but it would certainly help establish added position. Traders would need to refer to their own set of indicators or method to gain added confirmation of support at that trendline if and once price validated the recent trendline at its topside.
Expanding the trendline analysis to the remainder of the chart, one larger and softer-sloped (hence stronger) emerges, which is likely to impact negatively on any future price advance. In fact, it comes at a level that may or may not triangulate a separate overhead resistance level defined by the predictive/forecasting model.
PREDICTIVE/FORECASTING ANALYSIS:
The predictive model churned out an early bullish reversal sign (not signal), pending a bullish reversal confirmation signal, which might occur at the same time as the trendline validation defined above. Independent of that trendline validation expectation, though, a signal remains pending, and a set of targets have emerged, namely:
1 - TG-1 = 102.531 - 03 JUL 2014
and
2 - TG-Hi = 103.022 - 03 JUL 2014.
The first target is of moderate probability (Yellow). This means that price favors its validation at a lesser probability than the typical Green colored target. However, the lesser the probability, the higher the resistance and reversal potential. For instance, the loftier TG-Hi points to a low-probability of being hit (Red), but probably act as a stronger bearish rebuff level, suggesting that more bears are entrenched in TG-Hi than at the TG-1 level.
Combined with the aforementioned larger trendline, it will be interesting to see whether the intersection of TG-1 and that trendline might have any timing prediction powers over price by virtue of their intersection, which may or may not help triangulate a price x time level of resistance ... But don't count on it.
OVERALL:
USDJPY turned bullish, yet a set of technical events would need added completion to validate this trend into a bona fide bullish reversal signal. Were it be by pattern completion, trendline validation or predictive signalization, all of these conditions remain unanswered at this point. Therefore, the directional indicator shall remain neutral for the time being, although this trader's bias is implicitly bullish while technically (explicitly) guarded ... In other words, need proof, and this is something I let my predictive/forecasting model answer for me.
Cheers,
David Alcindor Predictive Analysis & Forecasting Denver, CO USA
All target hit again David. I wasn`t patint to the end, but I was in this trade.
4xForecaster
⋅
@nikokoev - Thank you. Yes, there was a significant excursion (moving way off and away, but the targets remained true and correct at the end. It's something that the model can tell, although it does not reveal what can happen in between, as in this case.
Thank you for pointing this completion out and for following my comments. Much appreciated.
Cheers,
David Alcindor
nikokoev
⋅
Thank to you for your perfect job.
TradersClassroom
⋅
What's you invalidation point?
4xForecaster
⋅
@StepBrotherFX - If I would trading purely off of price action, I would first wait for a second candle to validate the R/S conversion. Once validated, I would use that support value as my SL.
If an entry was already effected from a lower entry point, I would refer back to risk tolerance.
Assuming that the current price action is far off the entry level with multiple pips under the belly and assuming a H4 timeframe, then I would look for a SL based on structures. Here, 101.227 makes for the clearest and most recent structure-low (i.e.: a higher-low in this recent price reversal at this H4 timeframe), but a later bearish failure occurred also at 101.400.
Another way to define these SL levels would be using significant Fibonacci levels, assuming that you are very familiar with these but not using them. A break below the 38.2-Fib level should prompt the trader to look for a deeper level (perhaps at the 61.8-Fib) of reversal, if ever.
I personally use a different set of tools (non-price, multi-layered indicators) which help me filter out fakes, noise and define/confirm R/S levels and forecasts. It's something I cannot share, but the point here is that trading does NOT have to be done from the price field.
Hope this answer your question somewhat.
David
4xForecaster
⋅
@StepBrotherFX - The most prudent course of action here would be to wait for a validation of current R/S event.
David
4xForecaster
⋅
07 JUL 2014 Update:
From Twitter:
"USDJPY validated R/S line to the upside; Potential bullish sign; via tradingview.com | USD JPY #BOJ #forex"
David
LastBattle
⋅
638 support just failed... 632 on Bitstamp now :)
Get ready for a ride to 615/