Talking Points:
- GBPJPY broke out of a 967 pip symmetrical triangle that had a target over 180.00
- The advance from the breakout point of 171.13 was halted at 173.56 and price turned down
- A new triangle can be drawn taking into account the new swing points created by the false breakout
Forex symmetrical triangles are important price
patterns relied on by traders to identify periods of consolidation ahead
of an anticipated large breakout. Traders like using triangle price
patterns because they have risk to reward parameters which are easy to
determine from the pattern itself.
Not only can the stop be placed just outside the
pattern, but a limit can be determined by measuring the height of the
pattern and projecting this distance in pips from the breakout point.
This is called a measurement objective.
Thomas Bulkowski in his book, Encyclopedia of Chart
Patterns stated that symmetrical triangles meet their upside targets 66%
of the time. However, the recent GBPJPY triangle that was posted in my March 4th 2014 article was part of the 33% of triangle breakout failures.
Learn Forex – GBPJPY Symmetrical Triangle False Breakout
(Created using FXCM’s Marketscope 2.0 charts)
As you can see in the chart above of the GBPJPY
symmetrical triangle, a breakout happened at 171.13. Initially, wide
ranging candlesticks breaking above the top of the symmetrical triangle
may have led traders to believe the up move had more to go. However,
the doji candlestick pattern was joined by a bearish candlestick forming
a Japanese candlestick evening star pattern at 173.56 capped this
rally.
From this point, we can see an acceleration in
bearish price action as a series or red candlesticks form Bullish
breakout traders are now caught in what is called a “bull trap” in the
167.60 area. Stops are triggered and longs are shaken out. Today, we see
a strong surge in yen weakness and GBPJPY rebounds. The question now is, “Should traders give GBPJPY another chance?”
Learn Forex – GBPJPY Daily Chart Revised Symmetrical Triangle
(Created using FXCM’s Marketscope 2.0 charts)
A New Triangle Emerges
If the fundamental and technical reasons that
existed when the trade was made still exist after a stop out, then we
would consider re-entering the trade. However, forex triangle traders
may make modifications to the initial triangle in order to take into
account the new swing highs and swing lows.
First of all, the new swing high which was created
by the false breakout is connected to a higher previous high. Next, the
new swing low which was created by breakout below support is connected
by an upward sloping trend line from the previous swing low. The result
is a new symmetrical triangle with new buy and sell parameters. New
limits are set as well.
How to Trade this New Triangle
The breakout method for trading a symmetrical
triangle has not changed. However, the triangle has become bigger.
Despite the big GBPJPY big 350-pip run-up today to 171.05, GBPJPY is
another 250 pips from making a confirmed triangle breakout. Triangle
resistance is at 172.70 area making a long GBPJPY trade too early of a
proposition now.
If and when GBPJPY trades above 173.56, a stop can
be placed beneath the last swing low of the triangle at around 167.40
with an upside target of 183.91. On the other hand, a close below 167.40
would trigger a sell signal for a bears to trade the triangle south
with a target of 156.75.
After the last false breakout, traders may ask
GBPJPY to “show them the pips” with a confirmed triangle breakout before
going long GBPJPY a second time
No comments:
Post a Comment