Japanese Yen futures have shown good examples of some of setup patterns I look for in Swing Trader’s Insight. Let’s take a look at them.
Following Friday’s big selloff, Monday (the circled bar) showed extreme range contraction. It was an inside day and had the narrowest range of the previous eight days.This inside / narrow range day combination is the pattern I look for to signal a breakout day.On a breakout day we look for the market to open, move past close in support or resistance early in the session, and extend that move during the session. The close tends to be at the opposite extreme.
That’s what happened on Tuesday. After the open, the Yen rallied through Monday’s high (the breakout point) and continued its rally closing on the high of the day. The breakout trade would have been to buy when Monday’s high was taken out, and sell out of the long positions by the end of the day. This trade would have worked well on Tuesday.
On Tuesday night’s Swing Trader’s Insight newsletter, in the Yen comment section I wrote “Watch for a downside reversal”. Looking at the chart, the lower arrow is pointing to the momentum peak. This was a signal that momentum was likely to reverse direction and turn back lower. In the process, price would follow momentum lower. On a momentum sell short day, we look for the market to open on the high (often near the previous day’s high) and sell off over the course of the session, closing lower than where it opened. Given that the dominant trend in the Yen is lower, it was likely that Monday’s rally was short lived short covering. The combination of the momentum sell short signal and the down trend meant a short sale on Wednesday had high odds of success.
Traders don’t need to know lots of patterns and indicators to be successful. Knowing a few things well, being vigilant in looking for them, and acting on signals when they show will increase a trader’s odds of success.
The rally didn’t last long
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