This is an updated version of the GBP/JPY chart I posted yesterday, recommending a short trade on the breakdown of the channel. Congratulations to any of you who took that trade, it was a great one, but also needed to be exited rather quickly as we approached the 'bottoming area'. This chart shows two very classic versions of inverse scenarios. On the top label you will see the price action showing what is know as a "Thow-Over" and on to bottom label you will see what is known as a "Throw-Under". As is the case with strong channels, fair price balance has a tendency to revert to the mean and recover the boundaries of a channel after they have been broken. When channels do breakdown without a recovery, the profit potential is huge, but the risk is high wit regard to timing your entry. Normally, I trade a lot of channel and trendline brakes, so I have developed a fairly healthy sense for when they are in fact breaking for good, throwing down/over, or simply coming back to "kiss the channel" and say goodnight. The third effect is one in the same with the first, breaking for good. Most times (unless huge news hits) prices will break channel boundaries with a SOLID candle that is supported by HIGH volume when the move is legit. At that point I look for a quick turn around and a "kiss and goodnight", which is a complicated way of saying that the broken down price turns back up to quickly test the boundary, and if that fails, you have a tremendous trade opportunity. Your stop is simply the channel boundary, and your trade can easily turn into a nice runner....
Happy Trading!
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