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Elements of a high probability reversal setup appear in AUDJPY

Spot 3 out of 5 common elements of a high probability reversal setup in AUDJPY. Understand why they offer a compelling trade action when all five appear and what to expect of the last two.

 

5 common elements to spot in a high probability reversal

Previously I wrote that high probability reversal setups have common elements. When these elements converge, traders have very compelling reasons to take action. These elements are:

  1. Roadmap
  2. Resistance
  3. Chart pattern
  4. Candlestick pattern
  5. Confirmation break

These elements are explained here ‘5 price features that set up a good reversal trade‘.

 

3 of them can be spotted in AUDJPY

  1. Roadmap – rising wedge
  2. Resistance – recurring support/resistance zone since 2009
  3. Chart pattern – there are two: a head and shoulders reversal pattern and a downward equidistant channel
AUDJPY monthly chart from Oct 2009 to present

AUDJPY monthly chart from Oct 2009 to present

In this monthly chart of AUDJPY, the first element is a rising wedge. A wedge itself is suggestive of a reversal the closer it moves to the apex. The second element is the presence of a overhead resistance zone in use since 2009 (goes back even further). The wedge is jammed against the resistance zone which managed to cap the pair twice last year.

 

AUDJPY weekly chart Mar 2016 to present

AUDJPY weekly chart Mar 2016 to presen

In this second chart, the third high probability element can be spotted. Instead of one, there are two chart patterns here: a potential head and shoulders bearish reversal in the process of printing the right shoulder and a downward equidistant channel defined by blue lines. Any one of these suggests that AUDJPY is capped and more likely to move down than up.

 

What else to look out for?

Look out for the last two signals:

  • Candlestick pattern
  • Confirmation break

Look for a big bearish candle on the daily or weekly time frame that will either engulf the current 4-week range or print a bearish expansion below this range.

A confirmation break will likely show up as a trend line break below the rising wedge support. Both candlestick pattern and confirmation break should work in conjunction.

I have another example of a high probably reversal setup illustrated here ‘USDCAD high probability setup with multiple elements‘. For USDCAD, a reversal took place. The pair is now trading around 1.232 which is 450 pips below my post.  Note the same elements converging in slightly different ways but delivering a consistent message.

 

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Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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