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Learn Forex: Finding Entries in Extended GBP/JPY Trend

Learn Forex: Finding Entries in Extended GBP/JPY Trend

2013-01-18 21:04:00
Jeremy Wagner, CEWA-M, Head of Education
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Article Summary: Extended price trends can be challenging to trade. We don’t want to enter for fear of a healthy correction. We don’t want to trade counter trend either. However, price action over the previous week indicates two possible levels of support emerging to enter a long position in the GBPJPY.

Learn Forex: GBPJPY Divergence

Finding_Entries_in_Extended_GBPJPY_Trend_body_Picture_2.png, Learn Forex: Finding Entries in Extended GBP/JPY Trend

(Created using FXCM’s Marketscope 2.0 charts)

The GBPJPY has been in a monster trend by moving over 1300 pips in the past 2 months. One concern of trading a monster trend is entering a tiring trend. We can see how the highs on January 13 are met with a diverging Commodity Channel Index (CCI) reading. This divergence tells us that momentum is slowing and prices are likely to correct. (To learn how to trade using CCI, register to take this free CCI course and at the end of the course, receive a Day Trading strategy that uses CCI.)

Therefore, it is risky to enter into the pair as a buyer…prices may experience a correction. Additionally, it is risky to enter the pair as a seller, because we would be trading against the stronger trend to the upside. As a result, we are left with waiting out a potential correction and use that correction as a means to enter the trend.

Last week, we discussed the 138.00 level as possible support to consider entries. Now that we have another week of price data, let’s reassess our support levels for possible entries. As a result of price action taking place this week, two levels of support emerge giving us an opportunity to set up long trades for the coming week.

Viewing Forex Chart (GBPJPY)

When implementing forex technical analysis, namely measuring waves using Fibonacci extensions, two support zones emerge. (The Fibonacci extension is applied using the Fibonacci expansion tool in the Marketscope 2.0 charting package.)

Learn Forex: GBPJPY Fibonacci Extension Targets 140.00 and 137.50

Finding_Entries_in_Extended_GBPJPY_Trend_body_Picture_1.png, Learn Forex: Finding Entries in Extended GBP/JPY Trend

(Created using FXCM’s Marketscope 2.0 charts)

These support zones rest at 140.00 and 137.50. What is particularly interesting is how the monthly pivot point also resides at 137.78 which is close to the 100% Fibonacci extension at 137.50.

Therefore, we have identified two solid areas of potential support for the GBPJPY. Now we sit back and wait for prices to undergo a healthy correction. If prices reach the support zones, then we’ll look for bullish signals through oscillators and/or candlestick formations before taking any trades.

Good luck with your trades!

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

Follow me on Twitter at @JWagnerFXTrader.To be added to Jeremy’s e-mail distribution list, click HERE and enter in your email information.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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