The USD/JPY 60 minute chart has set up a Continuation Triangle which has broken out…head’s up though as the breakout occurred during the “doldrum” part of the day if you follow the PowerStats Pip Movement Range stats at Autochartist.

Since prices are reaching a double top (red line) as well as closing in on the Forecast Region there is likely some selling pressure that will build here.

The play here is either a swing to the top line of the Wave (34ema high) on or a short off this near term ceiling with a tight stop at 96.67 which is ten pips above the 6/26 high.

The cable has been on my radar most of the morning and I was looking to play a breakout before the London “close” today.  The 15 minute chart has ben s-l-o-w-l-y transitioning to an sideways market cycle over the past couple hours.

In the meanwhile a Continuation Triangle has formed with a low Initial Trend which is confirming the trend is slowing.

I’ve recieved some emails from many of you asking about my chart plug ins…I have — as always — the GRaB plug in on my charts which is available free from my blog and I’ve ben playing around with a plug in that I bought recently during my vacation called LMT which is something I have been testing for some swing trade entries along with my Wave.

One of the things that has been giving traders fits this week is not a lack a set ups but a lack of follow-through.  The short term intraday charts like the 15, 30, and 60 minute charts are better suited for the current environment the markets are in.

Swing set up are great and I’ve been doing more trend following over the past year than I can ever rememeber.  Identfying a trending market then capitlizing on a correction is one of the more relaxing ways to trade there is.

In this example, the EUR/USD is trending higher and bouncing off Wave support.

Here’s a view of the 30 minute with the deeper correction to the Wave on the swing set up.

Sometimes a set up just wanders and this in not unexpected when it comes to a congestion pattern like a triangle on a longer intraday timeframe…

The daily trend is still up but the market cycle is transitioning to a more sideways angle.  The shorter term 15 and 30 minute chart is also congesting.  The shorter timeframes do carry less risk.  Here’s a look at the 15 minute chart:

Since triangle patterns are “self limiting” it’s inevitable that this pattern will pierce either support or resistance during the Asian session.  The current reading on the MACD Histogram is slightly negative.

The longer term timeframes have been consolidating over the week and while I don’t necessarily expect tomorrow to be the big breakout day I do want to keep an eye on this set up going into tomorrow and next week.

The market cycle is sideways and sets up this momentum play from the congestion of the triangle.

The overall (daily) trend of the EUR/USD is up and is currently sitting on Wave support and trading at the 1.3900 level.

“Ok, so just wondering…….how do u decide to use the 60min chart to enter the trade vs. the 180 or some other timeframe where the ‘wave’ appears to sync up with the price action and you still get confirmation from macd?”

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Great question.  First, let me tackle the last part of the question.  In a swing trade (playing corrections within an established trend) I do no use the MACD.  Confirmation of the trend is enough and that means all I really need is the Wave itself for the set up.

The choice of the 60 minute has to do with market cycle recognition.

In other words, not all the timeframes will be heading in the same market cycle.  There are short, intermediate, and long term trends.  I think timeframe selection is an aspect of overall trade selection that many traders do not consider because they use the daily chart as the “trend” and not the actual trend on the the timeframe they are watching.  So it’s obvious to say then that I do not subscribe to multiple timeframe confirmation.  Now for those of you who want a “filter” you can certainly choose to trade in the direction of the daily chart as that is the most psychologically significant timeframe of all.

The example of the GBP/USD short was going against the overall (daily) trend but that was not necessarily a deterrent for me personally.  If it is for some of you, then you would be looking for buys whether they be swing buys (like the 15, 30, and 60 minute charts today) or momentum buys (like what’s setting up on the 180 and 240).

The process by which I choose which timeframe to trade from within a pair is what I call “triage”.  It’s a comparitive process that I start by checking the clock angle of my Wave individually on each timeframe.  The clearer the reading - the more I can trust what it’s telling me.  The market cycle reading is then what dictate what I will do with that particular chart.

Since the previous post was a swing short on the cable you’ll notice that the market cycle was a downtrend and that I set up the correction (bounce) from which I could follow the trend.  So the entry may be shorting into temporary strength — which is the correction — but the overall trade is a trend follow.

On shorter term intraday charts the cable was trying to form a floor.  Floors (and ceilings) are great because they show you where the decision levels on the charts are.

In this case a floor doesn’t mean a rally it simply means that there will be support…until there isn’t.  Floors are buyers and when they step away or are simple overpowered by sellers (resistance).

In a downtrend like the 60 min. cable there is a predisposition to the downside since it is easier to follow the trend than try and pick a bottom.  Picking bottoms is basically fighting momentum…

Here I was sweating it out a bit as the initial short was the entry at the bottom like of the Wave just below 1.6400.

Prices rallied to test the resistance and validity of the short when they ran up to the top line of the Wave (green).

Certainly that’s no fun to sit through BUT there is a difference between being in the red on a trade and holding it past when it is valid!

That’s why is is so important to understand why you are getting into a trade and why the entry is valid…without that there is not way of knowing when you should get out and why you should get out.

Stops are easier to follow when there is a plan behind their placement.

Validity dictates when I get out of a trade.  Not pips, not dollars.  Dollars will dictate IF you should get in the trade in the first place.  It’s an entry filter not a risk management tool.

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With the focus still on the 240 minute chart we’ve been examing all week, let’s look at the follow through from the momentum play.  So to sum up, there was initially swing short opportunity that stopped out as the market cycle transitioned to a three o’clock making the strategy of shorting bounces (swing trading) no longer valid.  Then the focus shifted to the momentum (momo) play of yesterday which did break to the upside and was confirmed by the positive MACD Histogram.  The follow through went to 97.24 and that means that the 97.00 level (major psychological number) was hit and had to have been seen as potential profit targets.  For that matter so could have 96.00.

Now the market cycle has shifted again as the momentum of the breakout has formed an uptrend.  Remember this analysis is specific to this time frame.  If I were — for example — looking at the 15 minute chart, you would see it’s in a downtrending market cycle.  If fact it’s the weakness on the 15 minute chart that “builds” the pullback or correction on the 240.

We’re back in swing mode and curently the pullback to the Wave is a swing entry long which initially triggered at 95.93.  I’m not happy that prices dipped below the “00″ of 96.00 nor that the entry was below it because now 96.00 is a obstacle to the upside.

The easiest (and best!) way to handle this entry scenario is to wait for prices to pop back over the “00″ so even though the pullback triggers the correction and the entry, it would be best to watch and wait for prices to rally back over 96.00, preferably, 96.05 and buy it then.

If not, it’s Friday, so leave this one alone.  Another market cycle will come  along and with it another set up…

Yes I’m having some fun but I don’t want to abandon our discussion here because the 240 minute USD/JPY did indeed transition to a sideways market cycle for a momentum set up and broke out.

Here’s the momo set up after the Wave finished leveling out to a sideways three o’clock angle.

I circled the MACD Histogram which is my confirmation tools for the breakout which is also circled.  Price broke up through the resistance of the downtrend line triggering the momo.

The swing short from the previous downtrend got stopped out as prices pierced the top line of the Wave.  The Wave then proceeded to flatten and trigger the momo.  NOW we have a uptrending market cycle and I’m magaing my momo and looking for corrections to play the swings once again…only now they’re swing buys in the uptrend.