Trade Leader Or Kahana presents technical analysis of the USD/JPY.
USDJPY daily chart painted a bullish flag. Flag is a technical pattern indicating a resumption of the trend. A bullish flag is created when there is a large upward price movement (that's the flag "pole"- marked in purple on the left picture) followed by sideways activity (three or more candles, marked in the light blue rectangle on the left picture) at the top of the flag pole, which do not cover most of the candlestick and are almost the same length.
The logic behind this pattern is that if after a healthy move its correction will be in a smaller range (sideways), the technical correction is weak and we should expect the trend of the flag pole to continue.
When entering this pattern it is better to examine other indicators to strengthen the entry point. Usually I am waiting for a candle that closes significantly (the amount of pips depends on the time frame of the flag) above the flag's resistance, but in this case I am using Woodie's CCI for improved entries. Woodie's CCI helps me to avoid minor or moderate corrections. I am observing the hourly chart looking for a zero line reject (ZLR) to join the uptrend. In the hourly chart, I marked in yellow, on the right picture, every ZLR that was created from the beginning of the flag (from 20.03.2014). Each of them gave a profit of approximately 10 to 20 pips. I will continue monitoring the hourly chart in order to take the next ZLR.
How does a bullish ZLR form?
First, a bullish ZLR must come after the first/s green bar/s. When the 50CCI (in black) is in the Zero line (ZL) region and rebounds sharply in a V-shape simultaneously to the 6TCCI (in light blue) which turns up in a V-shaped recovery below the ZL, close to -200. The pattern will be stronger if the V in both the 50CCI 6TCCI is big and very clear.
If a ZLR forms when the 50CCI is in the +100 region and the 6TCCI is in -100, it may not be the perfect ZLR. On those occasions, the established trend may temporarily resume and the 50CCI will swiftly return to the ZL in order to make a better ZLR.
In a previous post, I explained the nuances of the Zero Line Reject.