GBPJPY Wedge Provides Trades and Eventual Breakout

Cory Mitchell, CMT

Since March 18 when the GBPJPY bottomed near 124, the price has been moving in a rising wedge pattern. 

A lower trendline could be drawn on March 23 which was confirmed by a sharp bounce off the trendline on March 25. This provided for a long trade on March 26 as the price consolidated along the rising trendline and then broke out of the consolidation to the upside. 

The top of the pattern provided a profit target area for the longs, as well as potential short trades. Connecting the March 20 high with the March 25 high provided a potential short trade on March 26 as the price consolidated close to the trendline and then broke the consolidation to the downside. 

As the pattern unfolds, we had an additional short and long opportunity on March 29 and 30, respectively.

As the pattern narrows, it may provide another opportunity, but ultimately, the next big trade will be the breakout.

A downside breakout of this wedge has a price target near 126, just above the 124 bottom from March 18.

An upside breakout of a rising wedge is usually less dramatic. Since the price is already rising, an upside usually just indicates a continuation of the uptrend, albeit at a different angle. There is also the possibility of a throw-over, which is when the price rallies above the wedge's upper trendline, only to drop back into the pattern. A false breakout.

In the event of an uptrend, not much changes from the present pattern. I will be watching for pullbacks that consolidate and then break the consolidation to start running back to the upside. 

A downside breakout of the wedge indicates a trend change back to the downside. It can be traded swing-by-swing, waiting for pullbacks to the uspide, consolidations, and then breaks to the downside (out of the consolidation) to trigger short trades. Or, it can be viewed as a longer-term trade with a target near 126. This longer-term scenario is more likely to play out if we see continued selling across the global stock markets, and investors flee to the safe-haven yen once again.

To capitalize on these excellent trading conditions we're seeing, check out How to Trade Forex in Volatile Conditions.

By Cory Mitchell, CMT. Join me in my free Facebook swing trading group.

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

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