In the analysis yesterday, I mentioned that EURJPY has what appears to be bullish reversal pattern. This ‘inverted head and shoulder’ pattern is only validated if the ‘neckline’ is broken. Otherwise bears will continue to hold the line as the momentum is still very much pointing to a down trend. The levels which I predicted turn out to be very good and now we see resistance at the neckline. I also asked readers not to play breakout but to buy only at strong bases or throwback after a valid breakout.
This highlights a few salient features of FX trading:
- Simple concepts of support and resistance, chart patterns (with its own equally simple rules) do very well in FX and have predictive powers.
- A good FX traders plan for various possible outcomes but should not stick to a persistent bullish or bearish view.
- Preparation and planning will help the trader to take advantage of developments.
This motto will guide you ‘Plan but let the market tell you’.
In the case of EURJPY, prudence tells us that the patient bullish swing trader will wait for support (red horizontal line ~ 109.22) to come before attempting a long trade again. Short traders who are already in position might take partial profit at this level because of the bullish theme. If price goes beyond the red line, we should have a clear short view again.
EURJPY caught in range
