November 14 to 18, 2011 Weekly Winner: Catching the Break on GBP/JPY

Excited to find out how you could’ve made some pips trading GBP/JPY last week? First, check out my introductory post on the Weekly Winner to help you understand my trading framework.

Done? Alright, let’s roll!

November 14 to November 18, 2011 – GBP/JPY Price Action Review

GBP/JPY Hourly Chart

If you avoided trading the yen pairs last week, I wouldn’t blame you. After all, price has been really choppy on those pairs lately. The threat of intervention also made buying the yen difficult, even with the risk aversion we saw early last week.

With Italian bond yields surging above 7% once again, and Spain having bond auction problems of its own, the markets were in risk-off mode, dumping higher-yielding currencies along the way. This sent GBP/JPY flying down the charts, breaking through the PWL and bottom WATR before finding a bottom for the week at 121.00. At the end of the week, we saw the pair slip into consolidation mode, as nobody was quite sure what to do.

Now, if we were gutsy enough to take on GBP/JPY last week, I think there were two valid trades we could’ve taken to catch the bumpy rode down the charts, and both of them involved trading breakouts.

The first setup called for a short on the break of the PWL (123.00). We could have sold at 122.80, using a 40-pip stop, and held the trade open until the end of the week. Using this strategy, we would have eventually closed our trade at around 121.50, giving us a near 130-pip / 3.25:1 reward-to-risk ratio.

Alternatively, we could have waited for the break-and-retest of the bottom WATR at around 122.50. Using the same 40-pip stop, we could have held the trade until the end of the week for a 100-pip / 2.5:1 RR win.

Not great returns, but hey, if you can bag pips in that type of environment, then why not!

Were you brave enough to trade the yen crosses last week?