GBP JPY - STRONG BREAKOUT STARTED ABOVE LARGE CONSOLIDATION
This pair has been in a very strong Uptrend that began in 2012, forming an Inner and Outer Uptrend Line and 2 Large Pennant Consolidations.
DAILY CHART - STRONG UPTREND
We can now see that it has started to breakout from this 2nd Pennant with strong Bullish Candles above Resistance.
DAILY CHART - PENNANT BREAKOUT
The manner in which this started is one of 3 ways in which these Consolidation setups tend to be broken in this market.
1) The First is when the market simply provides a Single Breakout Candle without any pullbacks;
2) The Second way is when the market pulls back on the inside of the barrier and then U-Turns to provide the breakout signal;
3) The Third way- which is what has taken place here - is when the market initially breaks the barrier, U-Turns to test the barrier before U-Turning to give the signal that leads to the breakout;
These alternate forms can be seen in the diagram below taken from the Trading Manual;
DAILY CHART - BREAKOUT SIGNAL
As attractive as this signal has been on the Daily Chart, the size of the Stop Losses required to trade this breakout on the 4 Hour Chart have been too large.
Based on where we would have entered at the close of the Daily Candle, the Stop Loss would have been 332 Pips for the 1st entry option. With the 2nd Bullish Signal, the Stop would have been 169 Pips- both of which are too large for the average Retail Trader.
4 HOUR CHART - ENTRY SIGNALS
So the overall setup and breakout signal on the Daily Chart were strong, but unfortunately can’t be traded based on the Stop Losses required.
In these situations, we simply either wait on another setup on this pair that offers a smaller Stop Loss, or move on to another pair.
VIDEO ANALYSIS OF GBP JPY, MAY 13, 2015