I was studying the EUR/JPY this week and I drew a trend-line across the tops. At that moment it struck me that a trend-line across the bottom presented the possibility that a large triangle has been forming since August of last year.  The wave structure through the triangle is not ideal (and we know this is usually the case), however the patterns do represent a reasonable possibility. (Remember a proper triangle should have 5 moves of three and then continue in the previous trend direction). And even if the triangle scenario is incorrect the trend-lines are still valid and provide reasonable boundaries and  expectations. So I am trading this pattern expecting downward action over the next couple of weeks.

What the problem is now of course is weather the top boundary is within a reasonable risk tolerance for your trading. Having a stop loss of several hundred pips is truly not recommended, so what do we do now.

I believe there are two options. Simply let this move go by and keep this pair on your watch list for a buy when it appears we have bottomed near the lower  trend line. Or watch the one hour chart for a retracement upward and a candlestick pattern that represents a reversal back down.

Good trading all and for my European readers, I trust you enjoyed a nice long weekend.

Pierre

pcharlebois@tradingpostfinancial.com