Trading the Yen's Triangle Pattern
10/31/2013 6:00 am EST
If you follow or trade the Japanese yen currency, you’re likely aware that a lengthy multi-month sideways compression or symmetrical triangle price pattern has been developing on the chart, notes technician Corey Rosenbloom of AfraidToTrade.com.
Let’s review this price pattern and see three perspectives on the compression pattern, which historically has forecast a breakout event that may easily be in the near future.
USD/JPY Daily Chart:
USD/JPY 240-Minute Intraday Chart:
For extreme simplicity, the lower rising trendline currently intersects the 97 level (last week’s low) while the upper falling trendline intersects the 98.75 forex level with the US dollar.
Price appears to be moving up toward the midpoint of the pattern at the 98.00 level and may continue to bounce higher within the trendline boundaries toward the 98.75 level. Short-term traders can play this upside move should it continue to unfold.
Do note the 98.00 midpoint level (yellow highlight), which has seen reversals off this level within the context of the narrowing or compressing trendline boundaries.
For more aggressive traders, or those who prefer trading stocks and ETFs (including options) instead of forex, we can use the aggressive UltraShort Yen (YCS) or the UltraLong Yen (YCL) funds as short-term (only) trading vehicles.
The YCS (Ultra-Short Yen) chart is below with a twist on the triangle in play:
We can file this under “chart art” in the symmetry of the isosceles triangle (note the two near-perfect right triangles within the colored pattern) on the daily chart.
Beauty aside, we see a similar rising support line intersecting last week’s inflection low into $60.20 with the falling trendline setting up a potential target play toward $62.00 per share in the ETF.
Finally, we can view the Japanese yen “index” chart for a broader perspective of the recent activity:
The index shows a similar symmetrical triangle price pattern to the USD/JPY forex pair, and we note the confluence of the upper trendline into the falling 200-day SMA near the 103 index level.
The lower rising trendline intersects above the 101 index level, which makes 102 the relative “midpoint” or focal point of the price pattern.
For short-term traders, look to play the last of the movement within the compressing trendlines (ping-pong price action).
For intermediate or higher-frame traders, look for any sustained breakout above the compressing trendline pattern to generate a potential buy signal above 103 and 104 or short-sell impulse move down under 101 and 100.
Price tends to alternate between phases of expansion (trend—like the start of 2013) and contraction (like June to present), and if that principle plays out again, the next broader phase for the yen would be a breakout or trend impulse away from the 102 value area.
Trades would thus develop based on whether or not the breakout was “real” or a trap outcome.
By Corey Rosenbloom, CMT, Trader and Blogger, AfraidToTrade.com