USDJPY Short: Using Harmonics to Catch Wave-((5))

Jan 18, 2016

USDJPY has completed wave-C-of-(iv)-of-((5)), which means the consolidation phase may be temporarily complete and further bearish price action may be forthcoming. In order to catch the fifth wave movement, it is best to enter at a point which minimizes your risk and maximizes your reward.. This setup shows one way to utilize multiple strategies to supplement your wave analysis. The double top created by wave-iii and wave-v allows for the 2618 entry after the 61.8% retracement. This entry also falls in the PRZ of a bearish bat, which adds to the probability of this being an important level and we may see price continue to drop. SL is placed above wave-(iv) terminus with target at ((1))=((5)) level.

Jan 18, 2016

Trade active

Short Active. Also, there was a typo within the third wave. This does not affect the setup, and here is the revised labeling:

Jan 18, 2016

Trade closed: stop reached

A common error analysts make in "jumping the gun" on an EW corrections is counting waves of one lesser degree as it's superseding wave. In this setup, the count labeled iii-iv-v was likely waves three through five of wave-iii, and 'true wave-iv' continued to form a triangle. The "higher risk, higher probability" SL would be placed above the count invalidation level which would raise the probability of completion but in turn lower your R/R ratio. Here are a few alternate trade setups that could have been taken here with a lower R/R but a higher probability of continuing to target:
1) Trade the bearish bat setup - Enter at .886XA with SL above 1.13XA and T1 at .618CD with T2 at ((1))=((5))
2) Sell the trendline break/retest - After a candle closes beyond the trendline, sell the restest candle and set SL above recent highs or S/R structure
3) Combination of both - Sell the trendline break/retest and target .618CD with SL above 1.13XA. This is the highest probability target, but requires more risk

Each trader should analyze their own personality and risk tolerance to develop a strategy that is personally tailored to their strengths. Personally, I like risking less capital. The downside is a higher number of stop-outs, which means a small percentage of trades account for a large percentage of profits. The reverse would be true for those with larger risk tolerance. The most important thing is to be relentless with your personal discipline and follow your strategy unwaveringly (after it has been backtested and proven profitable).

Jan 18, 2016

Note