Notice the red ovals. These red ovals are highlighting the tall upper candle wicks. Here is the take-away: When candles produce tall upper wicks at or near major resistance price normally reverses back downward.
Notice the two red arrows. These two red ovals are highlighting two red candles with tall upper wicks. Here is the take-away; When a red candle occurs with a tall upper wick at a major resistance line it normally indicates a reversal in trend. When a red candle occurs with a tall upper wick but is not at a resistance line it normally indicates a correction.
There two take-ways are good examples of how properly analyze the markets. I have been trying to convey this message in the previous monthly chart I have been publishing over the last few days.
Notice the latest tall red candle. This candle opened at the high of the session and closed at the low of the session. This tall red candle means sellers are ALL IN and motivated to move this market back down to test major support. However, over the next month or two there are two outcomes we should expect to occur. First, since sellers are completely motivated to move this market lower, price action could pick up where it left off and continue to push lower. Secondly, since price has moved a great distance this month, as noted by the distance between the high and the low of the candle, sellers may realize this currency pair has become oversold and could correct the market back upward. Normally when tall candles occur the market will correct back to somewhere around the 40 to 50% area of the candle.
Note: Monthly analysis shows me the big picture as to how price action may behave during the balance of the month or even in the months ahead. I then use this knowledge to help plan my trades on the daily or 4 hour time frames. Should I decide to place long trades on these lower time frames I will know I am trading against the major trend and I am trading with greater risk. This then alerts me not to expect price to move no more than a reasonable market correction would allow and I need to make sure I have a hard take profit reasonably set. In other words I know I am counter trading and the market will soon turn back in the direction of the major trend. So I need to place reasonable price target objectives. When trading in the direction of the major trend their is less risk and I can let the trade run. But when counter trading smaller profit targets should be expected.
The next thing I do in my analysis is to move to the daily or 4 hour time frame to look for trade setups.
Note: GBPJPY is one of the 10 most volatile currency pairs. I am very interested in analyzing these 10 pairs for entry opportunities as they can provide the best money making opportunities.