Hi everyone
So I have learnt that drawing trend lines along with support and resistance is of course very important. My problem is that trends and drawing the lines can be very subjective based on the different individuals.
I am wondering if someone could tell me if I have drawn the correct lines on this USD/JPY daily chart to show a triangle. Have I drawn this correctly and if so how does one interpretate this? I have read that this is usually a sign of continuation but can also lead to a reversal. (Hmm that helps…)
I am also use the Fibonacci to help me see if I should enter LONG on this pair and continue on the previous upward trend (over the past 6-12 months.) Mind you it appears that it has broken through the Fib support lines if I have drawn this correctly.
Any advise would be welcome.
Hi Vinny
Nothing wrong with your lines showing a triangle. You’ve connected the lows together and the highs together and correctly identified a break out of the bottom of the triangle. Triangles are usually a continuation pattern, but if you consider that all it really is a tightening region of consolidation where neither bulls nor bears are dominant, you can appreciate why it can break out either side.
Triangles often have false breakouts though, so I prefer to see price come back to test the breakout region again as it will often go back into the triangle and continue consolidating. If price comes back and rejects the breakout area (blue box) with a nice pin bar or other reversal signal, that would be a cue for a short.
Your fib lines are fine, although I would personally have more levels on there. Consider adding 23.6 and 76.4 (or 76.8). In addition I also have 1.236, 1.382, 1.618 and 2 for price projections, but these aren’t necessary for you just now.
As you can see from my chart below, price has come to down and bounced from the 76.4 level. For me, I’d like to see price either come back to test the breakout region (where I’ve drawn a blue box) and bounce back down for a short, or to go back into the triangle and break through the other side. The two pushes down forming the breakout form a small descending wedge (blue lines) - a reversal pattern - and the current bar could be forming a double bottom with 28th August, so this suggests the breakout might not have legs.
Just to add into the pot, if you look at the red line joining the last two peaks and last two lows, this is also forming a wedge (valid if the current low holds) which, again, suggests this breakout might not hold.
This all adds up to a slightly confusing picture. I’d slightly favour long over short here, but further price action over the next few days should confirm.
