USD/JPY: Ride this Third wave Decline.The decline from 160.24 high subdivides into five waves. This move is significant as it identifies the dominant trend as down. The technical name for this pattern is a leading diagonal.
The subsequent three-wave price action unfolding in USD/JPY supports this bearish conviction. Countertrend price action commonly subdivides into a three. It is often slow, choppy and typically contained within a parallel channel. The technical name for this rally is a Zigzag pullback.
As illustrated earlier in my education ideas, in zigzag formations, the upper boundary of a parallel channel often projects the end of wave C with dramatic precision.
Moreover at 158.52, wave C would equal the length of wave A which is a common Fibonacci relationship in zigzag formations.
It is also the case that when a leading diagonal occurs in wave (1) position of an impulse, it is sharply retraced by a zigzag correction with 61.8% and 78.6% levels common targets. Although not shown,the 78.6% retracement level corresponds to the upper boundary of the trend channel and wave C equality target.
So in anticipation of wave (3) decline; a trader's bread and butter, the recommendation is to short at or near the 61.8% retracement level. The Protective Stop will be placed at 160.24; the origin of this decline. Why? Wave (2) of an impulse can NOT retrace more than 100% of wave (1).
The target for this trade is a drop of at least 13.58 as in (160.24 - 151.83) X 1.618. Why? As a guideline, wave (3) of an impulse often extends and commonly travels 1.618 times the length of the (1). A Risk: Reward of 1:3
Working with 153.60 as our key level. A break below this level would hint that wave (2) is over and wave (3) to the downside is underway.
Have a profitable trading week!
