The decline from 160.24 high subdivides into five waves. This move is significant as it identifies the dominant trend as down. The technical name for this pattern is a leading diagonal.

The subsequent three-wave price action unfolding in USD/JPY supports this bearish conviction. Countertrend price action commonly subdivides into a three. It is often slow, choppy and typically contained within a parallel channel. The technical name for this rally is a Zigzag pullback.

As illustrated earlier in my education ideas, in zigzag formations, the upper boundary of a parallel channel often projects the end of wave C with dramatic precision.

Moreover at 158.52, wave C would equal the length of wave A which is a common Fibonacci relationship in zigzag formations.
It is also the case that when a leading diagonal occurs in wave (1) position of an impulse, it is sharply retraced by a zigzag correction with 61.8% and 78.6% levels common targets. Although not shown,the 78.6% retracement level corresponds to the upper boundary of the trend channel and wave C equality target.

So in anticipation of wave (3) decline; a trader's bread and butter, the recommendation is to short at or near the 61.8% retracement level. The Protective Stop will be placed at 160.24; the origin of this decline. Why? Wave (2) of an impulse can NOT retrace more than 100% of wave (1).
The target for this trade is a drop of at least 13.58 as in (160.24 - 151.83) X 1.618. Why? As a guideline, wave (3) of an impulse often extends and commonly travels 1.618 times the length of the (1). A Risk: Reward of 1:3

Working with 153.60 as our key level. A break below this level would hint that wave (2) is over and wave (3) to the downside is underway.

Have a profitable trading week!
ForexforexmarketforexsignalsTechnical IndicatorsTechnical AnalysistradingtradingforextradingstrategiestradingtipstradingviewTrend AnalysisWave Analysis

Disclaimer