Let’s have a look at a situation that we have been following on the Usd/Jpy daily charts.
Let me underline the main point of this post – as traders, we are not here to predict the price movement but to follow it.
A basic awareness of the price structure enables us to manage our trades much more efficiently.
By awareness, I mean understanding the price movement by looking at simple support/resistance levels, Fibonacci levels, basic chart patterns etc…without relying on any indicators.
We had anticipated different patterns in this situation, and we used the most probable moves to get some good trades.
Let me go over this situation step-by-step

At this stage when price was rallying up, we were expecting price to find resistance at the 61.8 to 78.6 level…since these are important fib levels.
Plus the 61.8 fib level coincided with a previous swing high which would serve as a strong resistance.
So we were looking at 2 alternatives –
1. ) A harmonic pattern if price found resistance at a fib level.
2.) A bearish Head & Shoulders pattern.
As mentioned earlier, we do not try and predict which pattern would unfold…if at all price does find resistance. We simply prepare for the expected trade to happen.
Once price did find resistance at the 61.8 fib level, we can safely assume that the probability of price making a down move is pretty high.
Our trades should always be pre-defined and besides deciding on the correct entry level into a short trade, our price objectives should be clear.
For both the above mentioned patterns that we expected to form, the common price move (as shown on the chart) would be a very high probability trade.
Following up with the trade, we can see that price gave us the short trade that we were anticipating.

Initially the price objective of this short trade was the ‘C’ level (at 61.8 of A-B) which also coincided with the trend line support.
So once again – options for the price targets of the short trade –
Price objective.1 – the 61.8 fib of X-A, which is the trend line support. If price finds support at this level, then we close the short trades and start looking for longs to level ‘D’ to complete the harmonic pattern.
Price objective.2 – If price breaks the trend line support, then we look for further moves to the downside.
Once price sliced through the support level, we use the fib ratios to anticipate further support levels.

Alternatives –
1.) We can now classify this as a bearish 123 pattern and use the Fib expansions to determine further support levels. The FE 100 is usually an expected price objective on a 123 pattern. As of now, price seems to have found some support at the important FE 78.6 and we can expect some consolidation / pullbacks. One should take some profits, but still try and remain in the trade…in case it goes to the FE 100.
2.) If price breaks FE100, then the next “attraction zone” would the target of the bearish Head & Shoulders…which confluences appr. with the FE161.8

So, bottom line, we have used the tools of technical analysis to remain in the trade and determine the price objectives.

As I always say - “Act…..don’t React” -:))

Sunil.