- The USDJPY 240-minute chart has formed trend divergence on the last low (white line on the Stochastics) because price formed new lows but the Stochastics did not. Currently, price is at the ATR (plus sign highlight with the yellow arrow) and the key will be if this area serves as resistance or if price is able to break through this area.
If you go down in time to the 60-minute chart, you can see that price is at a blue ATR and is forming higher lows while the Stochastis is forming lower lows. This same pattern is also present on the 15-minute chart (higher lows in price and lower lows in Stochastics). This is known as hidden divergence and typically signals that price should move up. Easy, right? Not necessarily because any market typically moves within a support and resistance pattern.
While the market is anticipated to move up, there are a few issues:
- On the 240-minute chart there is a gap from the Friday close to the Sunday night opening and markets to not like gaps so that is likely to be closed.
- Price will likely break through the ATR on the 240-minute. However, since markets move within a support and resistance pattern, after breaking through this area, it will likely come back and test for support. This is why entering on breakouts can be higher risk verus waiting on the retracement (or pullback) to enter a position. Remember you always want to buy low (retracement in an uptrend) and sell high (retracement in a downtrend). This support and resistance phenomenon can be seen on both the 60-minute and 15-minute chart. Price broke through the ATR and then immediately returned for a test of support. The 60-minute chart is likely forming support at the ATR and the 15-minute formed support at the line of congestion dots on the 15-minute chart.
In other words, the same patterns that are forming on the lower timeframes (15 and 60-minute charts) will likely roll into the higher timeframe (240-minute).