GBPJPY How do we know where we are going?

Note: In an attempt to simplify where a pair might move I have included some techniques I use. I find it disconcerting why price continues to rise with the GBPJPY yet indicator coupling shows divergence. I have become more of a price trader than anything else. In the following charts I deduce where price might and that is might be going. I use bars instead of candles and I use pitchforks to project price as this is high probability trading in combination with price structure. Price will leave the 0% line (with proper test) of the fork and drop to the median line 80% of the time. (T Morge) So lets have some fun.

Note: The GBPJPY frequently, that is very frequently blows through divergence from a technical stand point. Lets look at the market structure and see where we stand. The following slide is a weekly GBPJPY chart showing only price.

Bare Bones

Note: So we have a chart with some bars. Now underneath there is a lot of complexity that goes into making those lines the size they are, and the proximity to each other. This trader moved from candles to bars a while back because of the simplicity of the bar to read. For instance…If a bar moves a long distance a + >50 form point a then comes right back down to say a +10 on a 60 min bar where it closes near the open of the bar…this tells me the shorts are about to take over. Simply…they are easier to read even though you may get similar information off of candle.

Note: Now my number one duty on a chart like this is to try to make sense of the information it is trying to tell me. Let’s round price up. Most traders get killed in a consolidating market and the sooner you realize you are consolidated the better. The next chart shows the consolidation as evidenced by the white rectangle.

Consolidation

Where are we? Price finds itself oscillating between the.382 and.500 level of a fib. Well we kind of know that at this level price should eventually turn back down. But not so quick. We need to find the signals for direction, and well we have a ways to go.

Fibs:

Note: Now for this trader Fibs can become a crutch as its probability ratio is not always consistent. Lets go back to price. This is where it gets simple. Ask yourself, “Do you feel lucky?” Or, should you ask yourself, “What would it look like of it breaks up or down?” What are the stoppers moving up? Check out the double top on the next chart.

The Double Top

Note: The bar that fell off the double top actually closed near its bottom (sign of strength, short) and on the 40 EMA. Price continues its drop almost to the bottom of the consolidation box. Now what would price look like if price breaks below? Noting a break below a known support level the savvy trader would be vigilant of the test and perhaps retest of that area. So we obviously have some work to do. Let’s say it bounces the support level. Price will simply move up from that area.

Short Lets take the short scenario just as an example. One of my rules is to not trade without a target and a stop. Well I look for confluence of lines to give me a target and I look for a line to find a stop. (All my stops are 7 to 10 pips or I pass the trade. I could not do that on this size of chart so we eventually must move down in size.) So there is nothingness below that old support level. Lets place some lines. The lines (white) have been placed on the succeeding higher lows and labeled. I averaged the last 6 bars and added this number to present price and get a value of which puts us in approximation of the first pivot low.

Approximation

Note: So we have a value. Lets increase it’s worth as a target. I now place a median line (Andrews Pitchfork) on the chart. The sloping lines catch a confluence between a horizontal line, a down sloping line and an averaged figure based on past price behavior. 80% of the time price will leave the upper median line parallel and drop or rise to the median line. Lets look at where the median line intersects with a potential drop of price. Answer: the median line + the averaged line catch price with the next bar

Note: A couple of mechanics might get in the way here first. Number one: is a retest of the lower boarder of the consolidation box. Number two: If so then the target will be slide down the median line (center line) as price moves to the right and continues to fall. The initial target is which falls just short of the averaged line yet just above the pivot lone at

Targeting

Target Acquired: This chart at this time would be set aside with that target in mind.

Long: Our next scenario is considering a bounce in or out of the channel. The mechanics of a bounce are self evident. I would approach the long in the same manner as the short. The difference would be to immediately place a median line at the turn in price and wait for that lower median line to be tested for a confirmation of the move up. Then I would drop down to a set of trading charts to enter knowing I would need great stop placement and a viable target.

The fall of price: Lets have some fun now. Lets place a median line on the weekly chart that would encompass the fall of price from July of Price dropped almost to the median line, retraced to the short term moving average then dropped through the median line, then came back and tested the median line (high percentage of this happening) and continued to drop and in this case to the 75% line.

Weekly Median Line

Closer Look: I have labeled the chart with pertinent data to indentify levels. Price moving through the median line and retesting then dropping to the 75% level before pulling back. Price found a bottom by the 75% median line and then caught the next high at the median line itself and since has consolidated in a 1500 pip channel since the beginning of June 2009.

Labels

Note: The large pitch fork encapsulates price by testing its lines. Adding this fork to the chart with the averaged target/ pivot low line/smaller fork median line target we find the outer limits of this move testing a lower 100% median line with the intersection of the lower pivot at #1 labels the 100% line of the pitchfork. This would be a great place to create a lower high in the pursuit of a cd leg of a large pattern. The arrows represent price hitting the 75% line and the double top just above that same line prior to the drop

A bottom?

Note: So for now I am looking at the short move until price tells me otherwise. Lets move down to a chart that is more manageable. I have to take note here that I trade tick charts with analysis from the minute charts. Why tick charts? Simply… patterns and price structure are clearer than either time bars or range bars.

Note: Lets take a look at price structure on a 1444 tick chart from Friday’s action. Price is nothing more than a bunch of Bars on a dark grey screen. Or is it?

1444 Tick Chart

Note: Now knowing we have a “bias” from a quick analysis of the weekly GBPJPY chart lets bracket price as it moves and mostly falls. A pitchfork is placed at the pivot highs and lows in an a to b to c pattern. (It goes high to low to high or low to high then low.) #1 test and retests the line and price drops to the median line #2. price rises and is held by the 25% median line, makes a series of lower highs, tests the line and drops to the median line again.

Note: Now this is where it is important to get the price structure right. Price makes a double bottom * then a high * and then a lower high *. A signal to place a another fork.

Bracketing Price

Note: Now the savvy or educated trader knows price has to show itself in order to change direction. This last setup is prime for an a turning point. Lets advance a to b then b to c and use the new turning point as c to place a new fork.. Price rises off the lower pitchfork line after a test and catches that higher low signaling a move up. And where does it go? To the median line.

Second Pitch Fork

Note: Are we having fun yet? (again lol!) Now lets advanced the a to b, the b to c and the c to the new price structure. Note how price dropped to the median line on the next chart. Note how (Red arrow) tests the Upper median line in a lower high before dropping to the median line. Also note how price still respects the old Pitch fork.

Third Fork

Note: This should give rise to thought as price moves between the lines. For this trader price rules. The bars as we have seen are easy to read. The pitchfork really grabs the harmonics of price and with high probability the forks give great targets.