The Forex Chronicles

USD/JPY May Be Poised for an Inside Bar Breakout – February 2019

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Price Action

The US dollar has been very strong in recent weeks, as you can see for yourself if you look at the charts of the various dollar pairs.

However in this article I want to take a closer look at the USD/JPY pair in particular because although this pair is also trading higher, and is now close to the 110 level, it could also be gearing itself for a breakout.

It is not yet clear which direction this breakout will be, but we have had a lot of sideways price action in recent days, and the exponential moving averages are starting to converge on the daily chart and are all trading very close to each other (which often happens before a significant breakout):

USDJPY Inside Bar Formation - February 2019

Inside Bar Formation

Most importantly of all, you can see from the chart above that we now have an inside bar formation where the last 5 candles (6 if you include the Sunday candle) are all trading within the range of the large candle from last Monday (indicated by the two black lines).

This is one of the main things I like to look for when trying to identify possible breakouts because the longer the price trades within the range of a previous candle, the more likely it is for the price to break strongly upwards or downwards when it eventually closes outside of this range.

Trading Opportunity

Subsequently, it might be worth watching the price of the USD/JPY over the coming days to see if it can break decisively out of this range. The high from the initial set-up candle is 110.16 and the low is 109.44, so these are the key levels to look out for.

Some people like to jump into a trade as soon as the price moves above or below the high or the low, but I personally think it is better to wait for the daily candle to close to see if it actually closes outside of the range. Then it is far more likely to be a confirmed breakout in my experience.

If it breaks higher, then the 200-day moving average is an obvious price target, which currently stands at 111, but I wouldn’t be at all surprised to see the price continue to break above this moving average to around 112.

If, on the other hand, it breaks lower, then I would expect it to test its recent low from last month, which is about 108.5, and possibly go as low as 108, but we will just have to wait and see what happens.

Please bear in mind that these are just my own thoughts and opinions, and it doesn’t represent professional financial or trading advice in any way.

USD/JPY Soars To 114 After Breakout

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Trading Price Breakouts

If you are new to forex trading, one of the easiest ways to get started is to simply concentrate on trading price breakouts.

The key here is to find currency pairs that are trading sideways in a narrow trading range on the daily chart, draw trendlines connecting the highs and the lows, and wait for the price to close outside of this range with strong momentum.

In an ideal scenario, you also want to see a series of short, mid and long-term exponential moving averages (I use the 20, 50, 100 and 200-period EMAs) all trading close together because this indicates a period of consolidation and indecisiveness, and is a common pattern that you will often see before a strong breakout.

USD/JPY Breakout

If you visit this site regularly, you will know that I will often highlight some of the most promising set-ups, and a few weeks ago I highlighted the potential for the USD/JPY to break out of its current trading range.

This was because it continued to trade within an ever decreasing sideways trading range with little volatility or momentum, and all the EMAs were tightly squeezed together in readiness for a potential breakout.

So as a result of these favorable trading criteria, I said that there was a real chance that we would see a decent breakout if the price breaks through the upper or lower trendline (at around 112 or 110 respectively), and as it turned out, it was the upper trendline that was breached.

USD/JPY Breakout Before and After Results

Here is the pre-breakout chart of the USD/JPY pair….

USDJPY Price Chart - 10 September 2018

….and this is what subsequently happened….

USDJPY Breakout - September 2018

As you can see, the price of the USD/JPY has hit 114 after breaking out of its previous sideways trading range, giving a total profit of around 200 points so far.

Final Thoughts

Of course everyone will trade these breakouts differently. Some traders may look for even more profits, possibly equivalent to two or three times the width of the trading range, for example, while others will scale out of their positions in two stages or will have much smaller profit targets than 200 points.

The point I want to get across is that these price breakouts can be very profitable, and although you do occasionally get a few false breakouts (including a few that I have highlighted in previous articles), the profitable ones will often compensate for the losing ones in the long run if you use strict stop losses and maximize your earning potential with realistic profit targets.

If you want to see a live example of a price breakout, you might want to check out the daily gold chart because this is threatening to break lower and breach its support level, as first pointed out here.

Possible EMA Channel Breakout On USD/JPY – September 2018

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Introduction

The USD/JPY has not been the easiest pair to trade over the summer months because it has been trading in a fairly constant sideways trading range with little volatility.

Indeed the average true range is currently around 52 points per day, which is a major drop when you consider that its average daily trading range was around 90 points per day back in February.

Nevertheless the recent price action suggests that there could be a decent trading opportunity just around the corner for this particular pair.

Pre-Breakout Trading Conditions

The best breakout trades often occur when the short and long-term exponential moving averages are all very close together, and the price is trading in an ever decreasing channel, and that’s exactly what we have with the USD/JPY pair right now, as you can see from the daily chart of this pair:

USDJPY Price Chart - 10 September 2018

The channel is clearly indicated by the two trendlines, and you can see that the 20, 50, 100 and 200-day exponential moving averages are all close together as well.

This indicates a period of consolidation and indecision, but more importantly, it suggests that there could be a significant breakout very shortly.

Trading Opportunity

The price is currently trading right in the middle of this channel at around 111.00, so there isn’t an opportunity to open a position right now.

However it may be worth opening a long or a short position if the price breaks decisively out of this channel (and closes outside of this channel), at which point the price will be around 112.00 or 110.00.

As ever, there are no guarantees of success, even with the best-looking set-ups, and I am certainly not recommending any possible trades. These are just my own personal thoughts.

However what I will say is that forex trading is all about finding high probability set-ups and managing your risk so that you come out ahead over time, and this could well be a high probability trading opportunity if the trading conditions are right and the breakout appears to be a decisive one with a strong breakout candle.