The Best Game Plan For Now
FX Volatility
Volatility is a traders best friend, right? Well
not always. There are times when the volatility simply appears out of nowhere,
it is at this point that gaining an edge to take advantage of the wild swings is
next to impossible. No sooner had I established a long in the
GBP and a long in USD/JPY
yesterday, the FX market was literally turned upside down. The
USD/JPY sold off 100 pips and then retraced
the entire move, all within 30 minutes. Stunning.
Naturally I was rather frustrated, and that is
putting it lightly. What moments ago was a solid technical set-up was now
something that resembled a plane wreck….welcome to the world of FX.
The reason for this? Bank of Japan (BoJ)
intervention. Plain and simple. But that is where the simplicity ends. Most
traders know that the BoJ wants a weaker Yen versus the Dollar in order
to promote a strong export market, curtail deflation etc. Knowing when they
come in and more importantly, how they come in are the big mysteries. It is
only after the fact that one can see the big footprint.
According to traders I spoke with, the BoJ
backed off the solid bids that were stacked up at 111-111.10 causing the
free-fall. Yet there were there with solid bids as the price approached
110.20. No doubt the break of 111 invited in the Dollar bears and weak Dollar
longs who immediately had their positions inserted where the sun does not
shine. The BoJ is determined to weaken the Yen and if they can shake out
a few weak hands along the way, the more cost effective it is for them to
accomplish their goal. Devilishly well thought out I might say. So for now,
focus on the USD/JPY trading higher, why
fight it? The 112.25 level is the 200 day ema and seems like a logical target
near term.
^next^
A friend of mine, a long-time FX trader, said
that this is one of those periods where the long established trend has been
broken and now the rules have been changed, yet nobody is really clear on what
they are just yet. Pushing the time frame out, i.e.
Position Trades is extremely difficult, so it is best left to trading
off intra-day charts yet not digging too far down in terms of time frame. As I
have often said, I do not look at anything below a 60-minute chart. This is
probably the best time frame for now.
The best game plan for now is to keep a real
close eye on key technical levels. It would appear that momentum and
continuation trades are not what is working presently, a good example was the
trade in the GBP and
EUR yesterday afternoon. It was not until key support was broke
that any significant moves took place. This is in marked contrast to the
typical approach of buying pull-backs and shorting rallies. Rather, the style
is more break-out oriented.
HVT
HVT was a
mixed bag yet again yesterday in terms of any one stock retaining its
“tradability”. Story stocks dominated my focus as names like
LLY, GE
and COF were on the list of great set-ups.
Again, 3-5 trades after careful observation is getting the job done very
effectively. As Market Wizard Mark
Weinstein was quoted, and I paraphrase:
“The cheetah, while the
fastest animal on the African plain and can outrun any of the prey it feasts
upon, always chooses to go for the young, weak or sick. Once identified, he/she
attacks with laser guided focus and effectiveness. It is only then that the
kill is most likely. That is the epitome of a professional trader.”
As always, I welcome your
comments and questions. Keep the FX questions coming; it is great to see the
level of interest being displayed.