Finding the trade most likely to stuff the most people
It’s a sad state of affairs but most movement in the market at the moment is caused by stop-loss hunting. The market finds a bias and starts building positions but with momentum and confidence lacking, tight trailing stops have become the norm. Once positioning gets to any sort of sizeable level, the market then turns and starts targeting the trailing stops.
There’s nothing we can do about this, it’s just the way the market presently is so best we join in!
What’s the biggest current market trend which would hurt the most people if it suddenly turned around? I think it could be USD/JPY? The market is long and understandably so, as we are near historic lows and the BOJ has quite aggressive easing policies. JPY short positions got to extreme levels last week and the selling has now re-commenced after a brief clean-out post-BOJ. Retail positioning in USD/JPY is only 60% long, but that does not have such a big impact as they are mainly short-term traders. It’s the big macro funds we need to watch, once their positions get too big, then they are in big danger of a stop-loss squeeze.
Looking at the daily chart, a really cheap trade idea would be to sell near 80.40 with a relatively tight stop above 80.80 just in case the positional squeeze happens. The closer to year-end we get without this pair going higher, the more likely we are to see a sell-off imho.