Trend Line Bonanza on EURNZD & Massive Bounce Potential on GBPJPY

EURNZD DECISION SPOT

The EURNZD is one of those charts where traders can draw an endless number of horizontal and slanted trend lines. Due to the choppy movements of the previous 1.5 years, many trend line connections are visible and it therefore becomes an interesting playing field for trend line traders.

To avoid paralysis of analysis, I only selected a few trend lines which have the most value. These trend lines share certain traits such as multiple hits, spaced out over several months, good angles, and relevance (price is relatively close). Read more about trend lines here.

EURNZD

Based on the image above, I can conclude that the daily EURNZD chart is showing a strong downtrend, which is best represented by the downtrend channel (magenta lines). Price is at the top of the resistance trend line. This means price is at a decision spot: break to the upside or a bounce to the downside.

  1. Upside break: there is a lot of resistance for the EURNZD. When the EURNZD does break above the local resistance (orange and magenta), it quickly faces another downtrend line (purple) before it has more wide open space.
  2. Downside break: with Wednesday’s engulfing daily twins a downside breakout is not appealing unless the candle stick pattern fails and a bottom of the candle is broken. When that happens, a downtrend continuation until the next layers of support is likely.

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GBPJPY BOUNCE

Our focus now shifts to the GBPJPY because a Winners Edge Trading mentoring trader showed an interesting trade setup (long) to the mentoring group earlier today. It was great analysis no matter what the result of the trade will be. Remember – as traders we have no impact on the result. Let’s review this setup:

  1. First of all, the GBPJPY broke out of a triangle (orange and green) to the upside.
  2. Besides the resistance trend line (orange), the pair also managed to break above a very thick layer of resistance (red lines).
  3. Broken resistance often turns into future support.

4- 9- 2014 gj

But difficulties could arise with a long trade setup due to bearish daily candles. The Doji at the top followed by a bearish momentum bar are not showing signals of a bounce. Without any signals of a turn back up, traders run the risk of a continuous fall. As always traders have 2 choices:

  1. Anticipate the bounce at the potential support
  2. Wait for price action candle stick patterns at the potential support for confirmation

The confirmation does not need to be done on the same chart – it could also be on a lower time frame. When I zoom into the 4 hour chart and add a Fibonacci retracement tool to the last swing high and swing low, bullish engulfing twins at the 61.8% Fibonacci level and support trend line (blue) become visible. A bullish bounce could in the making – something to keep an eye on. UPDATE AFTER release: price has broken the support trend line (blue), be cautious as uptrend is in danger.

4- 9- 2014 gj 2

Thanks for sharing this post and wish you Happy Trading.

 

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  • Chris

    Hi Pete, thank you. Very kind of you. We love to get feedback so it’s much appreciated as well. Have a great weekend and wish you good trading!

  • Pete

    Thank you for sharing your knowledge and expertise Chris. I appreciate it.