Forex traders can spot a really interesting head-and-shoulders chart pattern on the daily AUD/JPY chart today. There are several good reasons to pay attention to this particular formation. Head-and-shoulders is a strong trend reversal signal and the current pattern is topping a rather strong upward wave. The pattern is also 6 weeks wide, which means that it’s a fully formed medium-term signal. Thirdly, the right shoulder’s height is less than the left shoulder’s height, which stresses the bearishness of the whole pattern. Lastly, the right shoulder spans over 6 days, while the left shoulder spans over 13 days — this means that it took bears half as much time to drop the prices as it took bulls to raise them.
The short yellow lines mark the head and two shoulders of the pattern. The long horizontal yellow line is the pattern’s neckline. Despite the obvious strength of this pending signal, some caution is required for entering a trade. The cyan line marks the 10% buffer zone for entering a short trade, while the green line is my usual profit target, which is directly derived from the pattern’s height. I will set my stop-loss at the high of a breakout daily bar. Don’t forget that you can click the image for a larger screenshot of the current AUD/JPY chart:
Update 2012-04-04: Short position opened at 84.20 with stop-loss level at 85.64 and take-profit at 80.58.
Update 2012-05-08: Position closed at take-profit level of 80.57 (a positive slippage of 1 pip compared to the initial TP level). AUD/JPY continued down below my target.
If you have any questions or comments regarding this AUD/JPY chart pattern, please feel free to reply via the form below.
Hi There, i’ve been paying attention to audjpy chart also lately which attract me because of head and shoulder.
Today because of the NFPs news, i have gone through your cyan line (84.20) are you entering your short now? if yes, what is your SL ?
Thanks before
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admin Reply:
April 6th, 2012 at 4:26 pm
It broke through the cyan line yesterday on my chart. I’ve entered the short position at that moment. The stop-loss was set to 85.64 (the High of April 4) as the breakout bar was little traded above the neckline.
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Hello,
do you trail stop on this trade? Price moved up and I wonder if you are still in the trade. Are you still bearish on this pair after such big gains today?
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admin Reply:
April 12th, 2012 at 9:15 pm
No, I rarely trail-stop such trades.
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Are you planning to look after this trade and exit whenever circumstances change (or after a certain period of time) or wait until it hits TP or SL?
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admin Reply:
April 18th, 2012 at 10:15 am
I keep my eye on this trade. The initial H&S pattern is about 35 days long, so I will close the position if TP or SL is not hit during the 35 trading days after opening.
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admin Reply:
April 18th, 2012 at 10:16 am
There’s also an ascending triangle forming with its top horizontal line at the H&S neckline. If it’s broken up, I will close the position (if SL is not hit in the wave).
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My charts show low of todays bar at 80,54 so depending on spread your TP could have been hit. Congratulations of good setup, hope you made some nice profit!
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admin Reply:
May 7th, 2012 at 10:04 am
Unfortunately, my broker’s (Marketiva) daily low on AUD/JPY is only 80.70, so I am still in the trade :(.
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