EUR/JPY: The anatomy of a Rectangle pattern fade

Sideways patterns with this kind of organized floor and ceiling have been rare…with the width of the range, this is a perfect time to talk about FADES….always AGGRO but sometimes exactly what the price action is telling us to do.

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The daily EUR/JPY has formed a perfect Rectangle pattern and with the underlying market phase, this sets up a Distribution Fade set up: aggressive but effective and low risk…if you follow the rules.
Chart pattern alert courtesy of Autochartist.

The Stochastics indicator (21, 1, 3) I have on this chart is used to confirm that as prices reach the resistance of the rectangle that price action is reaching an OVERBOUGHT area where selling pressure could build…after all, isn’t that what created the ceiling in the pattern in the first place?

Fade shorts like this set up are aggressive because in some ways it’s a form of top picking but JUSTIFIED because of the market phase and the established resistance level of the pattern. The low risk comes from the fact that the typical stop loss for this entry is 10-12 pips above the high of the range. In this case the fade could be triggered at the current level and the stop could be placed just above the 117.87 high…but I will also add that since this high is just 13 pips from the “00” I would have no problem moving the stop loss higher to 118.05. Yes it’s more risk but I then get the added selling pressure of the “00” major psychological level at my back.