Trading the Yen Pairs with Confirmation

Trading the Yen Pairs with Confirmation

Yen Pairs are Overbought - Retracement is Likely

Trading the Yen Pairs
Trading the Yen Pairs Getty Images

As I wrote about the USDJPY yesterday, price went through the ATR and moved up.  There is still a gap that should be filled and price will more than likely seek an area of support for further upward movement.  These patterns can also be seen on the EURJPY and GBPJPY. 

In addition to the Yen pairs 240-minute charts being overextended to the upside, the 60-minute charts are currently overbought on each, as well.

Yen Pairs - EURJPY

Yen Pairs - GBPJPY

Yen Pairs - USDJPY​As shown in each of the charts above and marked by the red squares, both the Stochastics and ADX are overbought.  This typically signals a pullback or retracement is immient.  Typically these pullbacks serve several purposes.  One, they allow forex traders to take profits; and two, they allow price to test for support that will push prices higher.  So what is missing?  A reversal bar that signals the retracement is beginning.  Here is an example using the 15-minute chart.

  • Notice the reversal bar at the top of the market (identified with the yellow arrow)
  • Notice that the Stochastics is showing divergence on the highs (white line) and is confirmed with the magenta dot on price
  • Notice the decrease in buying volume (white line) showing volume divergence

Reversal bars on GBPJPY

​These are the clues that the chart presents showing the retracement on the 15-minute chart is likely to begin.  These are also the clues that will typically present on the higher timeframe, as well.  Additionally, if reading the higher timeframe (60-minute chart) in combination with the 5-minute chart, you will expect the 5-minute to flip the blue cross to a red cross and then move back up to test the red cross for resistance at this level.  The test for resistance confirms there is sufficient resistance for price to move down.  Here's an example of this using the AUDUSD chart from this morning.

AUDUSD​In other words, you are confirming these moves, not just with the leading technical indicators but also with a lower timeframe that is indicating the retracement is now confirmed for moving in the direction that you are anticipating.  Then you limit risk by using the binary options because there will be times when the market is so strong that it continues to move up.

 

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