Partner Center Find a Broker

If you’ve been keeping track of my Weekly Watch blog posts, you’d probably know that I’ve had my one good eye locked on this Guppy triangle for the past few weeks. Here are the entry levels I’m going for.

GBP/JPY Trade Setup

I know I’ve missed a bunch of opportunities to trade within the symmetrical triangle formation by going long or short on the bounces, but I wasn’t too sold on the R:R of playing the consolidation pattern back then. Now that price is approaching the peak of the triangle, I’m thinking that a breakout in either direction is bound to take place sooner or later.

Stochastic is already indicating overbought conditions on the 4-hour time frame so buyers might not be strong enough to sustain an upside breakout, especially if the oscillator makes a turnaround and heads south. Recent economic reports from the U.K. have been showing some signs of a slowdown after all, as businesses and consumers are starting to feel the Brexit jitters.

GBP/JPY 4-hour Forex Chart
GBP/JPY 4-hour Forex Chart

However, I also can’t help but be wary of headline-driven price action these days since there’s a lot going on outside the usual economic schedule. For one, the government’s Brexit plans are currently undergoing scrutiny at the House of Lords and the direction they take could have a big impact on how the negotiations play out. Then again, any indication that the divorce process could go without a hitch, at least from the U.K. side of things, could still be pound bullish.

Since it looks like a pretty even split for upside and downside arguments at this point, I’m just gonna let the market make the decision for me while I stand ready to go long on a break higher or short on a breakdown. I’m looking at a buy stop order above the 143.00 major psychological level and a sell stop order below the 139.00 mark, both of which are safely outside the triangle pattern.

The formation is approximately 800 pips tall so the resulting breakout trend could last by the same amount. Now this pair is a really volatile one and can move nearly 400 pips in a week so I’m gonna set stops that wide for a potential 2:1 return-on-risk on my positions with 0.5% on the line. Here are the deets:

Long: Buy stop order at 143.25, stop loss at 139.25, profit target at 151.25
Short: Sell stop order at 138.75, stop loss at 134.75, profit target at 130.75

As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.

Q4 2016 Trading Performance Review
Read about my trading framework
Risk Disclosure

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.