In last week’s article we looked at the three choices we were confronted with on the US Dollar/Japanese Yen currency pair (code: FXUSJY in ProfitSource or HUBB Investor software).

Those three choices - which apply to all market setups - were to go long (buy), go short (sell) or to wait. At the time, I suggested the safest option would be to wait as the weekly swing chart (Chart 1 below) appeared to be setting up for more upside movement.

Chart 1

click chart for more detail
click to enlarge

A 50% retracement of this weekly range gives a price target of 80.085, which is quite an easy number to remember if you think about it! A low around this level could provide a solid base for the next weekly upswing.

Now let’s zoom in and take a look at the daily swing chart in Chart 2 below:

Chart 2

click chart for more detail
click to enlarge

The swing ranges to the down side have been getting smaller - the last four swings were 1.74, then 1.37, 1.28, and now 0.88. This is not a sign of a market that is heavily selling off. In fact, it actually points towards more upside potential.

I can’t overemphasise the importance of watching the swings in a market. If your current trading software does not have a swing charting module, you should find one that does.

At time of writing (noon, Wednesday, 18 April), the swing chart has actually turned to the upside and taken out the previous swing top, which means we have expanding upswings and contracting downswings – a good sign to watch out for a change in trend to the upside.

By the end of the week, we may well have a first higher swing bottom on the chart, which would back up the bigger picture on the weekly swing chart. If we do see a new weekly upswing from these levels, a potential price target to watch would be around 88.50.

As always, it is important to wait for swing chart confirmation before looking to place a trade. Trading setups take time to unfold and can often require several days of stalking before they are triggered. It is always important to stick with a setup and check it every day.

Be Prepared!

Mathew Barnes