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AUD:JPY - Bollinger Band Set Up

CMC Markets

This long term rally in AUD: JPY still looks impulsive in nature at this stage. As long as we don't decline (or overlap) through recent peaks this creates a bias in favour of this major uptrend resuming.

Given this scenario, the potential Bollinger Band "W" reversal set up that I've outlined on the daily chart below comes at an interesting time. If we get a set up here it could represent the end of the recent corrective downtrend.

At this stage, price has bounced off the "overlap" support represented by the last major peak (dashed line). Since the initial respecting of that support we've had what could turn out to be a minor retesting decline. This is starting to look like a "W" or double bottom like formation.

The Bollinger Bands are giving a clue about the potential reversal nature of this situation since the first trough in the W is under the lower band. However, if we make a 2nd trough around here it could be above the band which is a set up under this strategy.

It's important to note that there will be no set up unless we make a 2nd trend trough above the lower band. At this stage that will occur if we move above yesterday's high. A more conservative approach is to wait for a close above that level as the entry trigger.

The higher time frame weekly chart appears to be confirming this set up at present. As you can see in the chart below, a bounce off current levels would result in the support represented by the middle Bollinger Band (20 period moving average) being respected.

If there is a set up here one approach to the initial stop loss would be to place it just under the low of the candle making the 2nd trough in the "W" on the daily chart.

I'll post some follow up thoughts on stop loss management and profit objectives if the trade does set up.

Cheers

Ric


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