Trade Ideas/USD/JPY

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.

  1. I like the idea, but given all the stop loss talk I would rather enter at your stop loss level ))). so on any overshot of stop loss hunters around 80.80 ….

  2. I like the idea too, but then I am itching to increase my long term long possie on a dip rather than looking for a short term play. In favour of a correction is that US treasury yields have hardly gone anywhere and they are way lower than earlier in the year when USD/JPY rallied to 84. I have no clues when it will fall off a little cliff, but I reckon we’ll see the 79s again soon enough. I don’t think USD/JPY can go much higher unless the FX market is right and the bond market is wrong.

  3. I’ll back the bond market in this fight fxgai, simply because the fx market can’t decide what it wants to do. I’m really not sure either way, but I’m just saying that the risk-reward is nice at these levels imho

  4. Me too Sean, bond market all the way. Big event risk later tonight favours a pullback too IMO. (I hardly ever have time for intraday trading these days though so that’s why I’m looking for longer term moves, and thus hard to ever want to buy yen!)

  5. In the big picture the UJ has definitely started turning. But trading UJ needs loads of patience. It’s like a behemoth ship turning – it will take months before the turn becomes fully clear. In the meantime, we will surely see big moves down. A correction might go down to 78.50, but must stay above 77.20 / 77.80. I will be waiting to catch the correction and then the resumption in the trend.

  6. I definitely agree with the approach (“adapt!”). I call it the Remora trading technique (more correct would be “Pilot Fish” trading technique but it doesn’t sound :-)) since it is about following the sharks.

    Btw, regarding the USDJPY, my math models suggests it is a good opportunity to short on further moves up. Probably today a good entry would somewhere around 80.60 with very tight SL.

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