USDJPY technical analysis: Looking at the phases of the market cycle using bull and bear channels

Bull channels are price trends with higher highs and higher lows. In a bull market, prices bounce off the lower trendline and rise toward the higher trendline. In times of economic development and investor confidence, financial assets are in high demand and market sentiment is favorable.

A bear channel is a price trend with lower lows and highs. Prices decline from the top trendline and strike bottom at the lower trendline in a bear market. During economic recession and investor pessimism, financial asset demand drops and market sentiment is negative. Prices fluctuate in a trading range without a distinct trend.

This market behavior might arise when market uncertainty or contradictory information impacting investor mood. The market may be indecisive and waiting for a stimulus to change direction, or it may be balanced by competing forces. Investment choices need knowledge of market behaviour and market cycles.

The USDJPY has been moving in a bear channel, and its end, a bull channel starts. Most people would see that only when we are at least half way past the start of that move. Next, we see to identify a possible end of the next phase, the end of the next channel. In this video, I speculate where that can be. Those are interesting spots for traders, as the plan their next trade zones to focus on, due to the potential high reward vs risk that these spots offer. In our case now, this technical analysis is guiding me to look for a short trade if and when USDJPY gets close to (slighly above or below) 134.772

If and when it does, the reward vs. risk on that short trade would be 8 to 1, or even 10 to 1.

Naturally, traders can also decide to take a Long till then, but their stops should be below the lower band of the bear flag shown in the video, making the trade plan a bit vulnerable and less attractive in terms of reward vs risk.

Trade the US dollar vs Japanese yen at your own risk, and visit ForexLive.com for additional views.