The chart shows a bearish short term channel in USDJPY (see 1 on the chart) encountering a bullish medium term ascending support line (see 2 on chart) which has created a bounce to near 95.00.
Considering the angle of the descending channel which still contains USDJPY (1), failure to find further support on the support line (2) could result in a continuation of this existing bearish channel (1).
However, the current bounce could continue to build along a very short term bullish support line (point 3 on chart) and could encounter resistance near the top of the bearish channel (1).
Below are examples of how to trade a bullish continuation, or a bearish reversal and breakthrough to the downside if the current weak bullish support line is not respected. If this line is broken it may become upside bullish resistance.
Although the medium term trend is bearish in the author’s opinion, there could be a very short term bullish continuation which could end early if current support levels fail.
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 95.33, with a Limit to take profit @ 96.10 and a stop-loss to cut losses @ 94.58 Risk/Reward Summary: Limit risk = +77 pips profit / (-75) Stop-loss risk = Gain to Loss ratio = 1.03
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 93.53, with a Limit to take profit @ 92.70 and a stop-loss to cut losses @ 94.28 Risk/Reward Summary: Limit risk = +83 pips profit / (-75) Stop-loss risk = Gain to Loss Ratio = 1.11