Forgiving the 5 pip indiscretion yesterday, the level has held. Does that mean a bottom is in place?
The thing with ranges is that you can only see how well they've performed after they've performed. You can pick many similar patterns on a chart and say "that was a good range then".
Trading an early developing range is difficult because you can only trade what's happening at the time, and we cannot foresee how a price will react. Trading ranges become easier the further they develop as we see levels strengthen.
I'm always looking for ranges in currency pairs and USDJPY is one of the best for finding well structured ones that can last a good amount of time, and thus give decent opportunities.
USDJPY daily chart
Why do I love ranges? They can offer great low risk trades because they define areas where the market is not willing or able to push a price beyond a comfortable area, and/or when there's no good reason to do so. They are periods of consolidation. I flagged four points this year for USDJPY, two above and two below. There's a few reasons why I picked these levels for this range;
- They have been prior strong levels or have developed into strong levels
- The price is in between both higher and lower levels
- Experience has taught me that the space between the high and low levels is large enough to allow the price to roam comfortably
- We're in a period just after a big price moving event and now the market needs another event to push the price to new levels
Let's be clear though. I'm not calling a bottom right here and now. I'm not claiming that I'm a genius for picked the range. The price could do anything. It could just as easily go to 108 as it could 112 in the minutes, hours or days ahead. When I bought it at 110.14 yesterday I had absolutely no idea whether the level would hold or not.
What I did do though is use the same discipline and thought process in finding a potentially low risk level to trade. In essence it's the same process I'd use for a fib, a moving average, a trendline, a range, whatever. That's the main point I'm trying to make. I doesn't matter where you think a price might go, what reasons might move it, the process of picking a trade should always be the same when looking for entries and exits. Where can you define your risk? Where can you define your profit or the levels that will stand in the way of your profit?
USDJPY 15m chart
Today's picture is clear to me. 110.20 is where support is sitting ahead of 110.00. 110.55/60 is where resistance is keeping the price in check. A move below 110.20 means 110 is likely to be tested. A move above resistance says 111 will be tested.
Maybe in a week's time I can look back and say "yeah, that was a great trade because we bounced and now we're at XXX above". Or maybe in five minutes I'll say the range is a dud, as it falls to 109. That's all after the event analysis and that doesn't help us in the here and now.
What does help us is reading what the price is doing now, as that gives us some idea what needs to be done going forward. Where it ends up in a week's time is irrelevant compared to what it does with these two levels above and below the current price, and that's all we need to focus on right now.