USDJPY → Descending Wedge Bullish Pattern! Should We Long Here?
Updated
USDJPY is forming a descending wedge pattern signaling bullish sentiment and setting us up for a long position. Are we in a position to short now?
How do we trade this? 🤔
We have the wicks! But we need confirmation. We've had three pushes down that include two large wicks and some nice bullish price action that followed. What we need now is a push and a close above the Daily 30EMA to confirm the move up. These conditions will give us enough probability to enter a long.
I'm playing this trade conservatively because we do have a few items working against us:
1. Lack of a Higher High
2. The Former Support Zone could act as a resistance
3. The Daily 200EMA is right above that former Support Zone (now Resistance).
That being said, we have a setup for a long scalp and if we size our position properly, this is a good opportunity to grab some market movement.
💡 Trade Idea 💡
Long Entry: 142.200
🟥 Stop Loss: 140.000
✅ Take Profit: 144.400
⚖️ Risk/Reward Ratio: 1:1
🔑 Key Takeaways 🔑
1. Descending Wedge after Extensive Bear Run. Bias to Long.
2. Last three touches of Support had Strong Wicks. Bias to Long.
3. Look for break above 30EMA followed by Test of Support.
4. Enter 1:1 Long Scalp with Confirmation
5. RSI at 41.00 and above Moving Average. Bias to Long.
💰 Trading Tip 💰
Descending Wedges signal an increased probability of a trend reversal. Combined with strong buy bars (candles with large wicks on the bottom), creates conditions where a reversal trade is reasonable.
⚠️ Risk Warning! ⚠️
Past performance is not necessarily indicative of future results. You are solely responsible for your trades. Trade at your own risk!
Like 👍 and comment if you found this analysis useful!
How do we trade this? 🤔
We have the wicks! But we need confirmation. We've had three pushes down that include two large wicks and some nice bullish price action that followed. What we need now is a push and a close above the Daily 30EMA to confirm the move up. These conditions will give us enough probability to enter a long.
I'm playing this trade conservatively because we do have a few items working against us:
1. Lack of a Higher High
2. The Former Support Zone could act as a resistance
3. The Daily 200EMA is right above that former Support Zone (now Resistance).
That being said, we have a setup for a long scalp and if we size our position properly, this is a good opportunity to grab some market movement.
💡 Trade Idea 💡
Long Entry: 142.200
🟥 Stop Loss: 140.000
✅ Take Profit: 144.400
⚖️ Risk/Reward Ratio: 1:1
🔑 Key Takeaways 🔑
1. Descending Wedge after Extensive Bear Run. Bias to Long.
2. Last three touches of Support had Strong Wicks. Bias to Long.
3. Look for break above 30EMA followed by Test of Support.
4. Enter 1:1 Long Scalp with Confirmation
5. RSI at 41.00 and above Moving Average. Bias to Long.
💰 Trading Tip 💰
Descending Wedges signal an increased probability of a trend reversal. Combined with strong buy bars (candles with large wicks on the bottom), creates conditions where a reversal trade is reasonable.
⚠️ Risk Warning! ⚠️
Past performance is not necessarily indicative of future results. You are solely responsible for your trades. Trade at your own risk!
Like 👍 and comment if you found this analysis useful!
Note
USDJPY finished out last week with a rejection at the 30EMA! We did not get the break above and close that we needed to justify our long entry. However, the descending wedge is still in play and we ought to be looking for that long confirmation above the 30EMA and ultimately, above the descending wedge resistance. I believe we should remain in scalp mode until we close above the previous Support Zone, at least on this 4HR timeframe.
Note
We have a 4HR candle above the 4HR 30EMA! We need it to close before entering. Once entered, take profit will be targeted in the former Support Zone (now determined Resistance Zone) around 144.400. Stop loss placed just below the low of the Descending Wedge.
Trade active
4HR bar closed near its high and above the 30EMA! Long entry 142.150, take profit 144.350, stop loss 139.950 for a 1:1 Risk/Reward.Note
Once USD/JPY closes a 4HR candle above the wedge resistance around 142.700, we can tighten up our stop loss to 140.680 just below the higher low. This is because we'll have broken out of the wedge in the direction that we're looking for. That puts our trade at a 1:1.5 Risk/Reward Ratio, reducing our initial risk by about 0.5%.
This allows us to take half profits at 1:1 Risk/Reward which is now at 143.620, just below the likely resistance zone (formerly support zone). The remainder of the trade can either be swung until we see a sell signal, or I can take profits at my original target of 143.950. I'll let the price action tell me where to take the other half of my position and go home with profits.
Note
USD/JPY closed a 4HR candle above the descending wedge resistance at 142.700. Per my last update, this allows us to adjust our trade stop loss as we have confirmed the wedge breakout. As shown in the previous update, Stop loss has been moved to 140.680, Take Profit #1 (half position) at 143.620 at which time, our stop loss will move your entry to lock in profits. Take Profit #2 will reside somewhere in the former support zone now resistance zone above 144.000. Well let the price action decide when it’s time to get out.
Note
The bulls are running! Let's watch these candles closely as we're about 120 pips in the profits and about 30 pips away from our first take profit where lock in a winning trade by moving our stop loss to our entry.
I'm leaving my second target in the heart of the Resistance Zone (Green area above 144.00). I plan to take profits at my initial target of 144.350 or if a reversal signal closes before then. The macro-trend on these timeframes is still bearish and we must not forget that. Other entries will present themselves if the trend continues.
Note
Take Profit #1 reached! 147 pips of profit locked in. Stop loss has moved to the trade entry price of 142.150. Now we aim for the second take profit target of 144.350.
Trade closed manually
Closed out the remainder of my position after this Triple Top appeared on the 5m chart.
That, plus the massive gap on the 1HR chart between the price action and 30EMA that I've been keeping an eye on. We're likely going to close that gap:
Add on the datapoint of an RSI over 70.00 that has fallen below the Moving Average, the price ran to the upside too fast and now needs to correct. We'll take the other half of the position home at 143.480 and call it a day. First half rendered us 147 pips, second half 133 pips!
A new USD/JPY analysis will be coming soon to play the next moves. Certainly other entries on the lower timeframes that can be taken. It's very possible this move will continue to the upside toward 144.00, I'll be looking for trades on the lower timeframes: 5m, 15m and 1HR.
Trade closed manually
USD/JPY closed the gap to the 1HR 30EMA as expected, bounced, and gave us a perfect buy bar closing near its high. I bought just above this bar at 143.280 for another 1:1 R/R scalp. Stop loss at 142.770, take profit at 143.790.
I used a smaller position size than my initial trade from this analysis, but a larger one than the half position I had left from the first trade. This is because as a trend continues, there is a reduced probability of success and thus, our initial risk should be smaller. I closed my position and captured another 40 pips when a sell bar appeared on the 15m chart.
We received yet another pullback to the 1HR 30EMA for a strong bounce into the Resistance Zone above 144.000. Our initial trade take profit would have been satisfied at 144.400! If a climax moment is near during a scalp I’m not awake for it, I’ll typically play the smaller timeframes so the trade doesn’t run overnight and I can sleep easy.
The reason for the 144.400 target is two-fold; it’s the just below the top of the Resistance Zone which was identified by past support/resistance areas, but also, the 4HR 200EMA aligns perfectly with the top of that zone as shown here:
The 4HR RSI is also over 70.00. Our probably of profit to the upside is steeply declining until we get a good pullback, which is exactly what I’ll be waiting for before entering again.
A new USD/JPY analysis will be coming soon to address this new state of the chart!
-Joe Dean
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