EURO CAD BULLS HAVE THE EDGE WITH STRONG BULL CROWN - macd forex trading system

EURO CAD BULLS HAVE THE EDGE WITH STRONG BULL CROWN ~ macd forex trading system

A Bull Crown Formation has now appeared at the Inner Downtrend Line following the sharp Bearish breakout from the Range Setup. This appears to indicate the start of an Uptrend in the days ahead, despite the predominantly Bearish direction of this currency pair.

From the chart below, we can see that the Breakout that was taking place from the Range Setup on the Daily Chart has now ended with a rally above the Inner Downtrend Line.

DAILY CHART- OVERALL DOWNTREND

Breakouts from Consolidations such as these can include periods of pullbacks that eventually lead to the continuation of the trend. In fact, above the Inner Downtrend Line, a Range Setup has been formed above the Uptrend/Counter Trend Lines. If these are broken bearish with a strong candle, it could lead to the resumption of the overall breakout.

DAILY CHART- RANGE SETUP

However, there are two factors that give the edge to the Bulls and the likelihood of a new Uptrend in the days ahead. The first is that Breakouts from Range Consolidations of this size are generally expected to last a longer time than appears to be happening here. Although the pullbacks are expected, the time that it has now taken in moving sideways is longer than is normal for Breakouts such as these.

DAILY CHART- EXPECTED BREAKOUT DISTANCE

The second factor has to do with the Bull Crown setup that has appeared above the Inner Downtrend Line. Not only is it unusual to have such a long period of indecision with these Breakouts, but it is even more so whenever a strong setup that signals a move in the opposite direction appears.

DAILY CHART- BULL CROWN

Because of these two factors, a breakout above the Resistance of the Range Setup is the more likely scenario. This would first carry us to the Outer Downtrend Line where the pair could encounter some resistance. From here, a break of this barrier could take place to signal even stronger gains for the EURO. This would require another strong signal given the significance of the barrier and that there is always a possibility of the existing trend continuing as long as we are still below this trend line.

DAILY CHART- PROJECTED MOVES

Aggressive traders may be tempted to get into this trade before a breakout signal is provided. This is often done to get in ahead of the market especially if the breakout candle is too large and does not provide a small enough Stop Loss. However, given the frequency of False Breakouts, it is always better to wait for the Daily Chart to signal the direction in order to trade with greater confidence. Stop Losses may be larger but if they are placed at an area that is strong enough to protect the trade, a trader can hold his/her position with greater certainty that profit targets will be hit.

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NZD JPY BEAR CROWN SETUP MAJOR YEN GAINS AHEAD - morning forex trading system

NZD JPY BEAR CROWN SETUP MAJOR YEN GAINS AHEAD ~ morning forex trading system

After a strong Uptrend that started in 2013 and which has been defined by an Inner and an Outer Uptrend Line, a large Bear Crown/Head & Shoulders pattern has now appeared to signal the start of a new Downtrend in favour of the Yen. This pattern, along with Double Bottoms, Double Tops and Consolidation Breakouts are the typical setups seen ahead of a major change in market direction. Given the size of this Bear Crown setup and the fact that this has been formed on the Daily Chart, there is a large probability that the Japanese Yen will appreciate significantly against the Kiwi over the next few months and years to come.

Taking a look at the broader picture, we can see the direction of this pair over the last 6 years.

DAILY CHART - LARGE UPTREND 2009-2015

A closer look at this pair reveals a large Bear Crown/Head and Shoulders Pattern that has now been formed at the Inner Uptrend Line.

DAILY CHART - BEAR CROWN SETUP

This type of setup is normally associated with trend changes on all time frames, but when they are seen on the larger charts such as the Daily or Weekly, they usually indicate that a major trend change is about to take place.

CROWN/HEAD & SHOULDERS SETUPS

There is normally a setup on the left-hand-side of the chart such as a Counter Trend Line or a Consolidation that forms the Left Tip/Shoulder. This is then broken in the direction of the trend before the market U-Turns to form the Centre Tip/Head, pulling back towards and often breaking existing Trend Lines. Following this, the market then continues moving sideways to form the Right Tip/Shoulder taking the shape of another Counter Trend Line or Consolidation. This setup will then be broken as the pair begins to form a new trend.

Taking a closer look, we can see that the Pennant that represents the Right Tip of the Crown lies on top of the major Inner Uptrend Line. This means that any break out short would break both the Support and the Uptrend Lines to provide us with two strong signals that indicate the start of a new Downtrend.

DAILY CHART - RIGHT TIP SETUP

DAILY CHART - POSSIBLE BREAKOUT

If this Breakout Candle is a Normal Candle and is supported by a strong setup on the 4 Hour Chart that conforms to the criteria of this Trade Sheet, we could capture a comfortable profit of 200 Pips from the breakout. 

TRADE SHEET SETUP

Given that this would be a Consolidation Breakout, the movement is expected to be very fast, taking only 3 - 12 days to hit this and other short-term targets.

With Consolidation Setups such as these, there is generally a 50-50 chance of a breakout in either direction when these setups are examined in isolation. However, within the context of this large Bear Crown Setup that has taken a year to be formed, a sustained breakout bearish for strong Japanese Yen gains is the more likely outcome.

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GBP JPY STRONG BREAKOUT STARTED ABOVE LARGE CONSOLIDATION - my forex trading system

GBP JPY STRONG BREAKOUT STARTED ABOVE LARGE CONSOLIDATION ~ my forex trading system

This pair has been in a very strong Uptrend that began in 2012, forming an Inner and Outer Uptrend Line and 2 Large Pennant Consolidations. 

DAILY CHART - STRONG UPTREND

We can now see that it has started to breakout from this 2nd Pennant with strong Bullish Candles above Resistance.

DAILY CHART - PENNANT BREAKOUT

The manner in which this started is one of 3 ways in which these Consolidation setups tend to be broken in this market.

1) The First is when the market simply provides a Single Breakout Candle without any pullbacks;

2) The Second way is when the market pulls back on the inside of the barrier and then U-Turns to provide the breakout signal;

3) The Third way- which is what has taken place here - is when the market initially breaks the barrier, U-Turns to test the barrier before U-Turning to give the signal that leads to the breakout;

These alternate forms can be seen in the diagram below taken from the Trading Manual;

DAILY CHART - BREAKOUT SIGNAL

As attractive as this signal has been on the Daily Chart, the size of the Stop Losses required to trade this breakout on the 4 Hour Chart have been too large.

Based on where we would have entered at the close of the Daily Candle, the Stop Loss would have been 332 Pips for the 1st entry option. With the 2nd Bullish Signal, the Stop would have been 169 Pips- both of which are too large for the average Retail Trader.

4 HOUR CHART - ENTRY SIGNALS

So the overall setup and breakout signal on the Daily Chart were strong, but unfortunately can’t be traded based on the Stop Losses required.

In these situations, we simply either wait on another setup on this pair that offers a smaller Stop Loss, or move on to another pair.

VIDEO ANALYSIS OF GBP JPY, MAY 13, 2015

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