Cross-Eyeing: Bearish Divergence on CADJPY – Trade Closed

Trade Closed: 2010-08-30 00:15

PoD Chart

Bahhh. Where did all the yen strength go? The yen took a hit last Friday, and unfortunately, so did my trade. All that after being up 100 pips!

I thought I had finally found some luck, as my second position just got triggered before the pair dropped 100 pips. I was only 50 pips away from hitting my first take profit point, before price reversed and consolidated for the rest of the week.

While I probably should have cut my losses, I kept my trade open because resistance at 80.40 held for the majority of the week… that is, before Prime Minister Kan said that he would take “decisive action” regarding the strength of the yen. Eventually, I got stopped out as the yen took a beating across the market.

Stop loss hit at 80.70.. Average loss of 90 pips / -1.0%

Decisive action? Decisive action? Really? Aren’t those words of yet more verbal intervention?

Well, perhaps the tides have turned, and maybe, just maybe, the BOJ will finally intervene in the markets soon. While I am a little disappointed that I couldn’t bag any profits on this trade, I must move on. Perhaps I’ll do better this week, as we’ve got tons of data coming out this week.

Trade Idea: 2010-08-24 23:15

PoD Chart

Now who’s ready to give the Loonie a bear hug.. Cyclopip is! It just makes sense to me to match the strong against the weak and short CADJPY. I have a couple of reasons up my armpits why (I don’t own a shirt so I can’t say sleeves).

First, yesterday we saw that Canada’s retail sales print a puny 0.1% growth rate for July, disappointing the market’s expectation which was up at 0.4%. Tsk, tsk. With that figure, I don’t think that I’m the only one in the Forex clique who thinks that the Bank of Canada will be announcing another hike on September 8. After all, the central bank has already raised rates twice, the disappointment could be a signal to them that consumers need a breather from those hikes.

Add to that the sour market sentiment of the market, and we’ve got ourselves the a rockin’ pipnergy drink for the bears. Talks of major economies such as that of the US and the UK dipping into another recession have flicked the risk aversion switch back on and send the bulls runnin’ home to their mommas!

Thirdly, did you see how the yen kicked the hineys of its counterparts in yesterday’s trading? It was legen-wait for it- dary! And you know what, I don’t think it’s finished with its rally yet. I think after yesterday’s breaks of key levels on all yen pairs, we could see the yen continue to fly high.

After shooting down yesterday to make new lows at 78.45, the pair has retraced a bit and is now trading above 79.50. The pair also appears to be forming bearish divergence. Stochastics has formed higher highs, while price has shown lower highs. This could be a sign that the pair will continue to shoot down and I just have to find good levels to enter my positions.

Once again, I’ve popped up the Fibonacci tool to help me find good entry points. Would you take a look at that – it seems like the pair is now finding resistance at the 38.2% Fibonacci level. With a shooting star now forming below the Fib level, I’ve entered half my position at market price of 79.60.

I have another set of orders in at 80.00. I think that if price reaches this level, there could be some selling interest, as it lines up with both the upper bound daily ATR as well as the 50.0% Fib level. Not to mention it’s a nice round figure and yen pairs tend to find support and resistance at those points.

I’ve place my stop above the 61.8% Fibonacci level. If price rises all the way to this point, it may be a sign that the pair could head all the way back up. My first take profit will be just above yesterday’s low at 78.50. I’ll also be aiming for new lows, as I believe that with out any concrete action from the BOJ, we could see the yen continue to rise.

Here’s my gameplan:

Short CADJPY half position at 79.60, stop at 80.70, take profit at 78.50.

Short CADJPY half position at 80.00, stop at 80.70, take profit at 77.00

I like this trade setup very much, almost as much as I like Kevin Durant’s game. To me, he is better than Lebron James (that’s right, I said it!). I believe he is focused and determined to take “best player on the planet” crown from Kobe. With him being the face of USA basketball right now, if Team USA does win the World Championships, it’ll launch KD35 right into superstardom.

That’s it for now. Thanks for reading my blog! If you wanna see my past blogs and trades, you can also check em’ out at MeetPips.com!

  • pradeep

    i read the divergence trading techniques with stochastic oscillator  in your website. they are very informative. i was just wondering if someone could kindly confirm me on my e mail about the best time frame for divergences for day trading.[15 mts, 30mts or 60mts charts would be best ?] secondly what period of stochastic is the best ?  is it 14,3,3 or 15,3,3 or 5,5,5, or 3,5,3 ?
    thanks, 
    pk moghe, [moghe123@yahoo.com]

  • Danny_fbook

    Cool….

  • Kythira

    I followed the link from the school of pips who were making an example out of poor Cyclopips :(
    Looks like in 20/20 hindsight, the hidden divergence did signal a continuation in the trend down however the ‘ship had already sailed’ and the sweet sell off was off the table. Thanks for assisting our learning experience Cyclopips.

  • Alf

    The information is great! everything is so well explained. Thank you for your great help. Alf from Melbourne, Australia.

  • Danny_fbook

    Cool….

  • Alf

    The information is great! everything is so well explained. Thank you for your great help. Alf from Melbourne, Australia.

  • Kythira

    I followed the link from the school of pips who were making an example out of poor Cyclopips :(
    Looks like in 20/20 hindsight, the hidden divergence did signal a continuation in the trend down however the ‘ship had already sailed’ and the sweet sell off was off the table. Thanks for assisting our learning experience Cyclopips.

  • pandupr2

    A good lesson on divergence. Need Practice before jumping into real trades. Thanks for the good post.