November 7 to November 11, 2011 Weekly Winner: Two Solid Plays on EUR/JPY

Before I show you how you could have made some pips last week, please go through introductory post on the Weekly Winner to educate yourself on my trading framework.

November 7 to November 11, 2011 – EUR/JPY Price Action Review

EUR/JPY Hourly Chart

I wanted to avoid trading the euro last week because I was afraid of getting whipsawed by any wild moves. And true enough, EUR/JPY was a buckin’ bronco last week.

After spending the first two days of the week consolidating right above the 107.00 MaPs, EUR/JPY dove over 200 pips to forge an intraweek low at 105.00. To blame for the euro’s sharp decline was the big jump in Italian bond yields, which peaked above 7% last week.

Why did Italian bond yields soar? Well, it was basically a reflection of the market’s low confidence in Italy, which has been experiencing quite a bit of turmoil in the political scene lately.

Towards the end of the week, however, sentiment began to improve on good news from Greece and Italy. My homie Forex Gump wrote an interesting piece on how Greek and Italian lawmakers inspired a risk rally. I suggest y’all check it out!

Anyway, there were two clear setups that materialized on EUR/JPY last week, and both of them involved the 105.00 MaPs. If you take a look at the past three or four weeks, you’ll see that this level held like a boss in the past, making it a good candidate for last week’s intraweek low.

First up was the midweek break of consolidation. Taking our cue from the humongous (as big as Pip Diddy‘s forehead) bearish marubozu that formed on Wednesday, we could’ve shorted EUR/JPY to catch the move down to 105.00. Entering right after the marubozu was formed, at around 106.12, we could’ve caught a 112-pip move to the 105.00 support zone. If we had used a 50-pip stop (above the PWL), this would’ve given us a more than 2:1 return on risk!

The best part is that we could’ve entered another trade when price hit the 105.00 mark. With a bullish divergence supporting our cause, we could’ve gone long with a 50-pip stop and aimed for the 106.50/PWL. That would’ve given us a 3:1 reward-to-risk ratio. Mooooney!

Of course, not everyone can thrive in such volatile environments. But this just goes to show that taking risks can lead to handsome rewards.

So, did any of you fellas out there catch these money-makers?

  • Personalme

    Made some on EJ but lost some on EU :(
    But overall Im in a good shape last week :)
    Weeks lately, almost major pairs were driven by news. U succeed trade the news, u succeed trade the pairs. U failed to recognize the news, u failed the trade.

    • cyclopip

      Well said, brother!