Why Trading Psychology is Crucial with the GBPJPY Monthly Breakout

The GBPJPY is well known in Forex for its large extended price movements. At times this currency pair moves like no other and it is able to fly up and down hundreds of pips. For other currency pairs, such as the EURUSD and AUDUSD, similar movements could only be achieved in a week or two of price action. Due to its lightening speed the GBPJPY is sometimes referred to as the Ferrari of the Forex.

THE SLOWDOWN

However, the once so speedy GBPJPY slowed down substantially in 2014. It seems like the US Dollar (partly) took over its role as this currency accelerated in its movements. Between March and August (6 months) the GBPJPY stayed confined within a range of less than 1,000 pips. The difference between these months and prior candles is easy to recognize when looking at this chart:

7- 10- 2014 gj m

THE BREAK

That slowdown broke druing the last month of September: the GBPJPY closed the month with a 1150 pip candle (measured from high to low) and price managed to push above the range (blue lines). The month did end bullish but there was a bit of a wick on top (screenshot above). Lets zoom into the weekly chart to see more details.

THE WEEKLY

The following points are in my opinion the most interesting observations from the weekly chart:

  1. Price is in an uptrend and has remained above the uptrend line (blue);
  2. The orange trend lines represent the range;
  3. Price managed to break above the range;
  4. Price is now back at the top of the range;
  5. Broken resistance can become support in the future.

Conclusion: this could be a hookback and a bounce spot for more bullishness. But I want to zoom into lower time time frames to look for confirmation that price could indeed be bouncing at this potential support.

7- 10- 2014 gj w

THE CONFIRMATION BOUNCE

The 4 hour chart is not showing any strong bullish reversal candle stick patterns or other signals. There are no strong bullish engulfing twins, no bullish pinbars or inverted head and shoulders chart patterns to be found. In fact price is in a neat downtrend channel (blue) – although the lines only have 2 hits (read more here).

The dynamics do change once I start to place Fibonacci levels on the chart. With Fibs on both the bullish and bearish swing high and swing low, I can see that price is approaching a confluence of a 61.8 retracement (purple) and -61.8 (dark red) but that it did not hit the area as yet.

Conclusion: I am still interested in trading the potential weekly bounce off of broken resistance but only if I:

  1. See a candle stick pattern at the 61.8/-61.8 Fibonacci confluence (purple) and/or
  2. See the down trend channel (orange) break (blue) and/or
  3. See price making a start of an up trend channel (green).

7- 10- 2014 uj 4

THE CONCLUSION

As we can see, not always must analysis lead to something that can or should be traded NOW. Sometimes its better to wait for confirmation and extra signals. Of course, its great if the analysis does lead up to an immediate entry or pending order, but I avoid taking trades just because I made analysis on this pair.

Sometimes traders do not want to waste time and therefore most of their analysis work will lead to an immediate trade setup. This is chasing the market (getting in too early) or jumping the gun (getting too late): a bad and costly hobby of a trader.

Do you agree?

Do you recognize yourself in the above profile?

Do you also tend to want to take a trade after analysis?

Let us know down below! Happy Trading.

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  • Chris

    Thank you Edith for the comments. I am reading a book about problems when we try to think contructively and finding supporting evidence for our analysis happens to all of us… this particular point we see often with forex traders I think. I agree with you that the best way to combat is via the trading plan. Thanks for the feedback 🙂

  • Edith Helwegen

    Yes I agree with you about the fact that you have to be patience before a trade is ready to trade. I put the currency on my watchlist and wait till the trade is ready. It’s not always easy but I stick to my plan.