You have to drill into your charts to see a clearer picture of the clues for the trend
A common wonder in trading is when does a trend move end?
The answer is we really don’t know. However, we can speculate by looking for clues from the price action and technical tools that might give us an idea, that the momentum is fading. That in turn might lead to a correction, which may lead to the end of the trend.
In this post, I will take a look at the trend move higher in the USDJPY seen after the break of a key ceiling yesterday, and what I am looking for from the price action and technical tools.
The USDJPY made a trend run higher yesterday with a break of a ceiling area at 111.39-477.
In May, the swing high stalled just ahead of that level at 111.39 and the price backed off from that peak.
On Tuesday, the price moved up toward that area, but backed off.
Yesterday, however, saw the price crack higher and trend higher. Today that run has extended. up to a high price of 112.62.
You can see the trend higher better from shorter time frame charts.
Looking at the hourly chart below, the yellow area is that ceiling area at the 111.39-477. When the hourly bar broke above, the price stayed above. That is bullish.
Another indication of a trend is that the corrections on the rise have been modest. It has been more or less, a straight shot higher.
So when might the trend stall? When, if long should you take profit?
One place, might be at a key target level.
If I took a step to a longer term weekly chart, the 113.19-29 area is a key target above that I would expect some profit taking. Why? The 200 week MA (green line on the chart below) and the 61.8% of the move down from the end of 2016 high to the 2018 low comes in at that 10 pip area. That combination should attract sellers on a test.
The high price today has reached 112.62 so far. There is room to roam before we get there but it should be in traders minds for taking profit.
What happens if it does not get there? Is there other clues that you can use to take profit from the trend?
Drilling all the way to the 5 minute chart could provide a clue.
Looking at the chart below, the yellow area is the swing area from the daily chart at 111.39-477. You can see the break, the test and the run higher from yesterday.
Today, the slope of the move higher is flatter. It is still higher but at a slower pace.
Technically, however, the price has tested the 100 bar MA on three occasions and bounced. More recently, the price has started to dip below that MA line. IN addition, the highs have been lower.
Is that indicative of a slowing of the trend?
Is it more bearish?
Is it the end of the trend?
It could be. It certainly has traders more on the defensive for a swing/more corrective move.
Could/should traders take profit/some profit?
I would be interested in taking some profit technically. We are at a point where there is a slowing of the trend. There are lower highs. The price is dipping below the 100 bar MA. All are already indicative of some profit taking.
Not so alarming, is that the price remains above the 38.2-50% of the move up today (at 112.26-345) and the price is still above the 200 bar MA.
As a result, there is more of a battle phase going on right now. The price can go either way.
A move back above the 100 bar MA and the topside trend line could ignite the next run to the key levels from the weekly chart above 113.19-29 area.
On the downside, a move below the 200 bar MA at 112.301 would be indicative of more corrective action to come, and getting below the 50% midpoint at 112.26 would muddy the trend water even more.
How far could a correction lower go?
I don’t know but traders will be more focused on the “trading” the pair vs. ‘trending” the pair (i.e., be more flexible with buys and sells). The same MAs would still be in play for bias shifts (i.e, a move above would be more bullish again).
My hunch is that the upside continues, it might just be a little less choppy, until that key weekly area at 113.19-29 is approached. Then, traders who are running the price higher, should become a little more cautious and that might shift the bias more to the downside.
But the price action and trading tools will ultimately help tell the real technical story.
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