High probability retracement-trendline setup for AUDJPY
Long, short trades centred on this 2014 trend line
Weekly chart features:
- A vey long trend line (red) starting from late 2014 that was clearly offering resistance.
- A series of down moves followed by retracement back to trend line.
- Absence of bullish reversal chart patterns make this current rally likely to be repeat of previous retracement waves.
- Besides resistance at trend line, ‘2 YL’/2015-low/previous 52-week low at 82 may provide potential resistance.
4-hourly chart features:
- Current momentum up.
- Price has now beaten a previous 6-week support (green zone) which is likely to act as support again.
How to reconcile?
- At this moment, big direction of AUDJPY remains down. There is no bullish reversal pattern to suggest otherwise.
- Trend line that is a proven resistance is likely to remain so. Therefore expect the pair to recoil from trend line at the next encounter.
- Since the trend line is so obvious, it is also likely to behave like a ‘magnet’. Bears are likely to short at or above the line and not below which means the current bulls might have an unmolested move to that line.
- Looking at previous retracement moves, each rally from bottom lasted 3-4 weeks. I consider the current rally into the second week only (from last week low).
- Short term traders who go by momentum might look at long with red trend line as profit target. Beware that long is counter trend and good only as long as momentum holds.
- The big picture is still down trend which should reward players who want to trade with the flow from a high probability setup. There is no urgency – the right approach is probably to wait some more to inspect price action when it gets to trend line.
Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’.
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