|A flag is one of the easiest patterns to trade. These are low volume pauses that eventually break out in the direction of the main trend. They are visible from the intraday to daily to weekly charts and provide low risk entry points into a known trend direction. Not only that, but they provide an exact minimum target, once a favorable breakout/breakdown occurs.|
|Figure 1: Daily chart of the yen.|
|Graphic provided by: www.esignal.com.|
|On the daily chart, the Yen futures suddenly broke down in mid-February and have now begun a sharp correction. The first sign of a change came with the breakdown of the upward trendline. This uptrend seems to be halted temporarily and a bearish flag is visible which, on breakdown below 9000, is likely to reach 8500. You can take a short position on the breakdown of the flag, and place a stop at the top of the flag. |
Was there a hint that a breakdown was coming? Yes -- divergence on the ADX and RSI. As prices kept rising, both the ADX and RSI kept falling. But it is important to remember that these signals are only hints and should not be acted on alone. A short position could have been taken earlier when the upward trendline broke down.
Figure 2: Weekly chart of the yen.
On the weekly chart, look for confirmation of our hypothesis on the daily chart. There is some strong support in the 8500-8600 area, which is also the target of the flag. So this is a good area to book profits. The ADX, after rising above 30, has started to decline and this could be the start of a consolidation. The RSI, which generally leads price movement, broke its support of many months -- not a good omen for the Yen to make new highs in the near future. So, until the market proves otherwise, the Yen may be expected to continue trading in the 8500 to 9500 range.
|Title:||Chief mkt strategist|
|Phone # for sales:||9871066337|
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