Long CHYJPY (-150,-150)
We have been trading pullbacks in the yen pairs for some time and on this occasion we entered what looked like a typical pullback on the hourly charts (1 and 4 hour) however with price action now fully developed it looks like that pullback is actually taking place on the Daily and weekly time frames. The dominant time frame remains higher and the eventual target for the move has not yet been met, a series of higher highs and lower lows remains in tact.
A big loss to end the month with a trade going all the way to its stop loss for the first time since early June was very dissapointing. Since mid June we have accumulated more than 1,200 pips including last weeks losses. During that 6 week period we were trading the dips in the yen pairs and closely associated trades. Having suffered a stop out we must re-assess the validity of that trade and look at the market structure to decide what and when we should trade.
This is a normal part of trading with a mathematical model, a view of the market where all parts are related and move in a synchronized manner. When the model alters so must the assets we choose to trade.
Trades in this pullback system are successful if and when the dominant trend at higher degree resumes, there are two occasions when it can fail:
The USDJPY has changed, having been essentially flat and choppy for the last 12 months it now looks to be taking on a bearish outlook. This can be seen as a combination of the price action, the dropping economic performance as measured in the surprise index and the Trump administrations seeming failure to get anything done. Debt ceiling talks are approaching, tax reform seems like a distant dream and health care is just a mess, eventually this will take a toll and I think now is eventually.
If the USDJPY moves from a sideways to a negative stance that has significant impact on my market model, it makes it very difficult for any of the yen pairs to make progress that in turn causes the Indicies to fall (perhaps 10 or 15%) and puts pressure on the European currencies. Of course the depth of the USDJPY drop is debatable, I think with one more upward correction due it is heading to 104 and may break the invalidation level at 94, if it does then I do not know where the bottom lies.
Under this new market model of a weak USDJPY and recovering global economy the assets we will be looking to trade long are Gold, Silver, Oil, AUD, NZD, CAD and we will be looking to go short USD, EUR, GBP. This is not the complete list of trades I will be taking but it represents the view of the market and all trades will be following this general direction.
The next trades will be really important, the USDJPY continues to move lower and is not yet at the extreme values for this short term move, indeed recent price action has made me lower the target for the USDJPY. European indices especially the DAX are also pulling back more than can be expected on an hourly time frame suggesting a larger move is a foot, I will be watching price action in the coming days especially closely as the market model moves from buy the dips in the yen pairs to buy the dips in the commodities. Hopefully the next 6 weeks will be as profitabe as the last 6 when we last changes the market model.
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