What a difference day makes. Yesterday everybody is afraid of risk, today things are reversing. All right, not reversing, but pausing or settling into a range or… whatever. Bottom line is, that currencies on move yesterday, found themselves on the defenses today. This makes for interesting markets, but trading is only good if one was watching, and acting on, shorter time frames. I guess, Yen is not a safe haven today. In reality, though, next couple of days will decide if intermediate move has played itself out or few hundred more pips are left on the downside.
British Pound was one the “risky” assets that rebounded today. Inflation figures were released and they were on annualised pace of 1.8% in July, surpassing economists predictions. Don’t these people get anything right? Somebody pays them, correct? If they can’t predict something they are apparent experts on, who needs them? I know it’s unfair, but sometimes just can’t help myself. This mildly increased inflation is expected to put pressure on interest rates, and possibly push them higher. That would make GBP more desirable. Of course, this can easily change tomorrow on new story.
Regardless of the reason, GBP had a nice run today, including against JPY. Quite a change from yesterday. Move started at a beginning of Asian session and came out of a very nice reversal pattern. Since I always look for buy signals in the beast, I took it. Pattern was best visible on 15M charts. It took few hours to form, but proved successful. Due to small time frame on which it form, target was also small, 70 pips for me.
I would define this pattern as a variation of “cup with handle”, somebody else can say it “inverted head and shoulder” or “poorly formed saucer”, perhaps one of the “crowns”. In itself it doesn’t matter. Of importance is the fact that this type of reversal, in all varied, yet similar forms, is very common. They happen on all time frames and are fairly easy to identify. While not always profitable, nothing is, when you combine how often they happen, how easy they are to find and relative reliability, in my opinion they are worth searching for. This blog is full of trades based on them.
It wasn’t my intention to look longer term, or bigger reversal here. Had no idea there was much more left in this move. No other trades on the long side followed. In fact, I still have short CAD-JPY. This one was based on 4H charts. Currently this trade in at about break even and for now my intentions are to sit on it. But if I see shorter term opportunities in opposite direction, I’ll take them. Most likely using different Yen crosses and separate accounts.
Mike K.
Mike I agree with you that these type of reversals ar happening often. However, just like any other type of formation, and something you pointed out yourself many times here, it might not be very easy to recognize while it is happening. Emotions are at play, one is second guessing herself. Takes experience. But yes, as far as price patterns go, what you trade seems very simple. Which is very deceptive.
Reverse for sell signals, right?
Renata, of course it takes some experience. Thing is, it is easier to look for something that there is plenty of. Emotional part of trading is another story altogether.
BTW, thank you for the email. Very entertaining.
DDD, yes!
Time for the oold PPT to stop this plunge. Covered the crosses but left the gbp/chf short. As tempting as it is to leave them short. I do not see Timmay letting America wake up with another five percent haircut in its 401k’s.
Sounds like things are OK for you. Start to a better month, maybe?
[...] Common reversal pattern post covers it more details, but we can see how late action on Friday and early Sunday combined to create a bottom reversal. Nothing fancy, just a garden variety, short term bottom. Buy order was placed at 147.18, looking for a breakout, which happened when London opened for business. Target was set according to principles described couple of posts ago. It was a modest 50 pips objective, which was met in less than hour. Nice, simple trade. [...]