27 Oct 11 - GBP/JPY - M15 - Potential Bullish Shark Pattern

It has been a very nice week for GBP/JPY where this pair has been very harmonic where it offered plenty of trading opportunities.

For today, it seems that might be another trading opportunity where a potential Bullish Shark Pattern is forming. The PRZ for the pattern in this case is between 120.827 to 120.903. Upon a successful test of the entire PRZ with a RSI validation, there will be an opportunity for a long position.

Update:

As a result of the EU news whereby they have come with a plan solve the debt problem, GBP/JPY soared before even testing the PRZ which resulted in a pattern completion failure. As a result, the trade was aborted.

26 Oct 11 - GBP/JPY - M15 - Bullish Shark Pattern

As I continue to monitor the GBP/JPY as it moves down again to test the PRZ of the potential Bullish Shark Pattern, the pattern was invalidated when one of the warning signs showed itself.

There was an extreme price action seen on the Terminal Price Bar followed with a continuation move in the predominant trend which moved beyond the Stop Loss Limit of the pattern which invalidated the whole setup.

I was monitoring this pair closely after it tested the entire PRZ but when I noticed a continuation move in the predominant trend, I decided to walk away as it has already played out one of the warning signals of Harmonic Trading. In addition, there was no price stabilization seen after the pattern completion and that itself was another warning signal to stay away.

Update:

As I continue to monitor this pair along the way and as the bar after the Terminal Price Bar closed, it happened to form a hammer where the body of the hammer was within the range of the Terminal Price Bar which somehow made it a borderline case where the pattern was apparently still valid.

A few considerations were made here where the Primary (M15) and Proximate (M5) timeframes' RSI were in support of the trade.

As seen in the attached M15 chart, the RSI rolled out from the extreme oversold area which made the setup valid and the long hammer was also indicative that there was a limited downside for this pair.

I did take this trade in this case, but I guess the trade management aspect employed by me in this trade was a very conservative one which resulted in a slight loss of 1.4 pips where there was a slippage when my protective stop was triggered.

A lesson learnt in this case was to give the trade more room to work itself out or to wait for the price action to exit the PRZ before we employ a protective stop.

Nonetheless, this shows the beauty of Harmonic patterns and how well they work in the markets.

26 Oct 11 - GBP/JPY - M15 - Bullish Shark Pattern which failed to complete

I was initially looking for a Bullish Shark pattern to be validated on the GBP/JPY today to continue to go long on it as a continuation signal in a rising channel.

In this posted example, it shows the importance of waiting for the whole PRZ to be tested before executing a trade. It might be exasperating sometimes to be monitoring a setup for a few hours only to be it invalidated, but face it, this is trading. Therefore, discipline and patience are key in trading.

As a result, the trade was aborted and I will have to wait for another signal to come in again.

Although price reversed nicely before testing the whole PRZ, this will be one of the cases where we will just ignore it even if price runs as we are only looking to trigger a trade in a zone (PRZ) where we expect the price action to reverse. Other than that, we will not do anything despite the RSI having an early validation signal.

I was also thinking if a short could be taken when price moved up and formed a possible Bearish 5-0 pattern, but then, i realised that the 1.618 AB extension was not tested in the first place and thus invalidating the setup. In most valid patterns, we want to see precise ratios tested before we would consider a trade.

As in this case, it highlights the importance of respecting the structural signals. Once a point of out of structural alignment where it exceeds the pattern's limit or it is shy of the pattern's minimum ratio, we do not do anything. We are looking at precision here and therefore it will be okay to stay away.

GBP/JPY - A very harmonic pair for the week

It is interesting to note that this pair has been the only pair which has been very harmonic for the week.

As in the case of today, there were 2 completed patterns, of which one has a very little potential while the second has a very nice classic textbook setup.

The first pattern completed was a Bullish 5-0 pattern which lacked the RSI validation on the M15 (Primary) Timeframe. See attached chart.

As seen in the attached, there was no RSI extreme test which indicated that there might not be a great potential in this trade though. However, when we zoom into the M5 (Proximate) timeframe, there was a nice signal for entry which might have prompted a light long on this trade. See attached chart.

As in this case, I may consider this trade as the trade would have been executed in the direction of the predominant trend, which is to say that we have the wind at our back which would have increased the probability of the trade. As seen in the attached H1 (Distal) timeframe, we can actually see that the pattern completed in a rising channel and there was a support at 0.382 retracement level at 121.272.

Since I was not very keen on taking this setup, I decided to avoid it while documenting it as this is part of the education when it comes to trading. As I monitor this pair was the day passes, the market presented another nice opportunity and in this case, a nice classic textbook setup which pointed to a very high probability trade.

In this setup, there was a Bullish Shark pattern completion which allowed us to have a better entry and at a better price as compared to the earlier Bullish 5-0 pattern as there was a nice RSI validation at the completion of the pattern when the price action tested the whole PRZ.

Firstly, for this Bullish Shark pattern completion for the second setup of the day, the price action traded to the bottom of the rising channel which became a support in the distal time frame and this happen to coincide with the 0.50 Fibonacci Retracement level seen on the Distal timeframe as show in the attached chart.

Knowing that the setup was in the direction of the predominant trend, the pattern completed on the Primary timeframe (M15) nicely with a valid test of the PRZ with a RSI validation which was a nice textbook setup. However, in this case, although the Terminal Price Bar was a little extreme which might point to a warning, the RSI exit from the extreme oversold area was an indication of a valid entry. In addition, the following price bar after the Terminal Price Bar did not violate the low of the Terminal Price Bar which gave us added confidence as seen in the attached chart.

On the completion of the pattern, we would have to sync the Proximate timeframe with the Terminal Price Bar completion and with that, there was a nice setup for the trade to be triggered, which turned out to be a nice trade.

In the case of the Proximate timeframe, there was a nice bullish engulfing pattern which occurred after the RSI exited from the oversold extreme area and that was the signal to go long within the PRZ.

As we can see from today's example, there will always be an opportunity in the market so long as we give ourselves a chance. Patience and discipline is key to trading success and it is okay to miss trades sometimes. This will always happen and we will just have to wait for another opportunity to come along.