Structure support / resistance, 21 EMA

Using structure support and resistance levels to determine if break of 21 ema indicates a trend change

Thursday, USDJPY, Update:

  • No Lower highs has been broken and price is trading below the 21 ema.  A new LL has been set.
  • Price had a .382 retrace up but nearing a near perfect .382 AB=CD completion.

Tuesday, USDJPY, 2-hour chart

  • USDJPY has been on bullish upward trend since October 2012.  However, the last three weeks or so price has been moving down almost an 800 pip drop.   When will the fall stop, turn around, and head back up?
usdjpy 2 hour chart 21 ema
Trend Trading using the 21 EMA
  • One the chart above, I can see price moving down and the 21 ema is following behind it.  A few times price has broken above the 21 ema line but only to resume its bear trend further down.

Why?  How to determine when a 21 EMA break signals a trend turn around?

  • The best answer is to look at structure support and resistance as defined by LH and LL, in this case.
  • When price break above the 21 EMA, I need to ask: “did it also break an earlier lower low resistance and or a LH.”

So, from the above chart

  • at the blue line labelled structure res 1, as price broke above the 21 ema it did not also move up past the structure res 1 level.  For a signal to be valid that price is going to turn around and head further up this level needs to be broken, as well.  It did not, the structure res 1 held, and price moved further down with the 21 ema nicely behind it all the way.
  • Similar scenario at structure res 2.  Priced moved down further pulled back up and closed above the 21 ema line but could not break the previous LL support now turning resistance.  For price to have pulled further back up this level would need to be broken.
  • Again, the same pattern played out at structure res 3.  Priced moved further down setting a new LL then pulling back up and breaking the 21 ema line and trading above it until it reached the previous LL support now turn resistance.

This pattern will continue until the 21 ema is broken along with a previous support turn resistance and Lower High all have break and close above.

Yes, one may say there were pips to be gained after price broke the 21 ema.  This would be true but that would be counter trend with bigger riskier stops.  The higher probability lower risk trade may be taking trend continuation trades at the resistance level.  And, I prefer to have multiple reasons to take a trade.  Breaking the 21 ema is not enough by itself.