Range Break and Retest on USD/JPY- Closed Trade

Trade Closed: 2013-06-28 9:39

Good morning forex friends! It was a pretty quiet week relative to the past few weeks, but it was a positive one for USD/JPY bulls. And with the weekend quickly approaching, it’s time to adjust to avoid weekend risk.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

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The first half of the week was a bit of a snoozer for the pair, and it wasn’t until risk demand rose in Asia and some risk-bullish Fed comments (NY Fed President Dudley and Fed Governor Powell talked down the possibility of stimulus reduction) came to pass that the pair started to go into bullish mode, typically when it is viewed as a proxy for general risk taking vehicle. Besides that, we saw positive US and Japanese data throughout the week to help give traders who are bullish on risk a chance to play their views through USD/JPY.

With the weekend closely approaching and a nice pip gain on the pair, I decided to close down the trade manually at 99.00 to avoid weekend risk.

Total: +126 pips/ +0.29% gain

In retrospect, there’s probably two things I could have done differently. The first is to go in at market after the FOMC statement rather than think we may see a pullback. It was a pretty big, sentiment shifting event in which the market wholly jumped into without looking back in that session. The important thing to remember is to better recognize these game changers better going forward. The second is that a few sessions after the event is when I should have expected a pullback, after the initial event reaction was fully priced in. I actually think I did a good job of this by creating a scaling in plan rather than going in full position at market, but I should have had more conviction and waited until that retest of 97.00.

Overall, I was spot on with direction and gauging volatility, but as always, the trade management could use a bit more work. At the end of the day though, I’m glad to end what was a pretty rough quarter with a decently executed trade and a win.

Well, it’s Friday–time to rest, relax, and review my trading for the week (and quarter)! I hope you all get a chance to do the same. Thanks for checking out my blog, stay tuned, and have a great weekend!

Entry Adjustment: 2013-06-24 13:05 ET

Good afternoon! I didn’t get the retest of the broken resistance level I was looking for, so this week I’m adjusting my entry into my long USD/JPY position as I think the strong USD will continue.

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My views on the current market drivers are still the same as last week: USD strength on the recent FOMC announcement of the plan of drawing down the bond buying program. And with very few tier 1 US and Japanese events on the forex calendar this week, I think the probability of a big sentiment shift against the Greenback is low. So, instead of waiting to see if we’ll see a retest at 95.80, I decided to scale into a position, starting at market and another if we do see a pullback to a 50% Fibonacci retracement of the recent swing move. Here’s what I am doing:

Cancelled long orders at 95.80.

Long half position at market (97.74), stop at 94.85, max profit target at 100.00

Long half position at 96.35, stop at 94.85, max profit target at 100.00

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

I’m still only risking 1.00% of my account with this new this trade structure, and I have a potential reward-to-risk ratio of about 1.35:1. If the trade does go my way without pulling back to my second entry order, I do look to scale in another small position and trail my stop to help maximize my reward and reduce my risk. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

Trade Idea: 2013-06-19 17:10 ET

Good afternoon forex friends! What a day for the Dollar as the markets react to the highly anticipated FOMC monetary policy decision today! The reaction has setup a simple, consolidation break formation on the USD/JPY; time for the longer-term rally to resume?

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In today’s statement, the FOMC kept interest rates and the bond purchasing program as-is, also raising the economic outlook and lowering the inflation outlook for 2014. The big driver of the US Dollar rally was the statement that if the incoming data is broadly consistent with this positive forecast, moderating the pace of bond purchases would be appropriate sometime this year, and that they may even end purchases mid-next year. Boom! Of course, Bernanke made it absolutely clear that any future Fed action would be data dependent, but for now traders are taking it as a cue to unload risk. This is short-term bullish for the Dollar, which is why I’m looking at USD/JPY.

I like the USD/JPY to play my long USD bias because of the massive bond purchasing program Japan just started this year. Also, we recently saw a massive Yen rally after last week’s disappointing Bank of Japan meeting, a move that is probably full priced in by now. The divergence in monetary policy outlook favors the Greenback for now, and it may be time for USD/JPY to bounce back into the longer-term trend.

On the smaller timeframe chart above, we can see the pair just broke out of its consolidation pattern that goes back to last Thursday. I am a bit cautious of going at market because Asia and Europe have yet to price in the FOMC event, and the fact that BOJ Governor Kuroda will be speaking on Friday. So, I look to set my orders at the broken area of resistance, with a pretty wide stop to play a longer-term swing on what could be a sentiment shifting moment for currencies this year. Here’s what I am going to do:

Long USD/JPY at 95.80, stop at 93.30, max profit target at 100.00

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.70:1. If the trade is triggered and does go my way, I do look to scale in small positions and trail my stop to help maximize my reward and reduce my risk. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

9 comments

    • Pipcrawlerpipcrawler Post author

      This has the potential to run up higher in the longer term… you may want to keep watching it for an entry that suits your trading style :)

      Reply
    • Pipcrawlerpipcrawler Post author

      Unfortunately, the market didn’t pull back to my entry orders before rallying higher… rally missed… doh!

      Reply
  1. PipMeHappy

    Good morning, PipCrawler! Excellent plan!

    Listening to J. Kicklighter’s analysis vid this morning, I question the strength of the bullish Greenback in this pair, because although it is above a rising 200MVA (Day-chart), the threat of a full-blown risk-aversion scenario playing out would have the Greenback rally but the USD/JPY fall. At present, there is no risk-off move, but rather, as Ilya Spivak was commenting, a Fed-specific market reaction, which is why the USD is rising both against the Euro AND the Yen. I expect that this week’s Fed-members speeches will be dissected ad nauseam for clues about the “Taper”, but going by Fisher’s and Kocherlakota’s comments yesterday, I would say that on the whole there will be no market scares.

    Let us see what price action moves (and the relatively mild US data releases) have to offer this week… I am still long the USD on the Yen pair, so keep your fingers crossed for me too.
    Happy trading.

    Reply
    • Pipcrawlerpipcrawler Post author

      Thanks PipMeHappy. It seems only bonds and equities are in risk-off mode, and it hasn’t affected currencies as much. We’re probably in a paradigm shift when it comes to intermarket correlation thanks to a possible change from the FOMC this year.
      We’ll definitely see more volatility, which is a good thing for you short-term guys, and I think in the medium-to-longer term, it might be good idea to stay bullish on USD/JPY….of course, that’s unless the story changes :D

      Reply

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