Fortunes are made when trends change

Markets present a lot of opportunities for short term, intermediate term and long term traders when specific market conditions appear for those who use appropriate trading system for specific market conditions. It is of uttermost importance for those who monitor market swings and trends to capture a change in the trend at the very inception of it, enter position or line of positions and then take a good bite off the move which follows (if it does). Every year these kind of moves do develop in currency markets as well as in other financial markets. Being a daily follower of various currency pairs I take daily advantages of day trades, short term swings and likewise eagerly wait for those big moves. As Jesse Livermore once said:” Big money is in big moves”. Big market sharks wait for these as they can easily double their capital when trends change. Whatever trader you are be aware that big opportunities lie for you if a trend comes and you better set aside other type of strategies and do some trend trading. 

When you finish with the article read other related articles and watch a few videos on the topic:

How to make money in trading breakouts

Short lived momentum reversal trading strategy

Trading supply and demand

Spotting market trends change

Nicolas Darvas trading system

Looking at the current picture in Forex I predict that a shift in Yen trend is about to happen. You probably know that various fundamental factors (mostly verbal threats about stimulation from Japanese government and Central bank officials) cause Yen to collapse tremendously since the middle of November 2012. However, the price action over the last few months in most of Yen pairs show that the downtrend of Yen has probably exhausted itself and an uptrend (in Yen) may start any time now. What are my arguments for this statement? I have a number of factors how I identify when a trend changes and I want to present them in the article. Let us look at them.

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An uptrend line has been broken in most of Yen currency pairs

If you look at gbp/jpy (Pound Yen) and eur/jpy (Euro Yen) pairs you will clearly see that the trendline in the pairs has been broken. I drew the trendline from the point where the ascent of the currencies started. That is not the lowest point. A trendline (in my definition) has to connect two points (without piercing the price) (it may connect more) from the lowest possible point (in uptrend) to a major correction point (look at the chart to see what I mean). So, if the 13^th of November is the lowest possible point for (gbp/jpy) drawing a trendline and the major correction point is the 26^th of February we can clearly state that the trendline was broken yesterday (the second of April). For eur/jpy pair the starting point is the same as that of gpb/jpy (13^th of November) and the major lowest correction point is the 25^th of February (day earlier than for the British pound). Now, for eur/jpy the trendline was broken even earlier than for the pound (17^th of March) and the price went under the trendline (on the 21^st of March). Remember, if price goes through (does not matter whether price closes or not) the trendline (it is broken). 

After major correction prices failed to reach higher highs

That is another rule that I look for while trying to identify whether a previous trend is really over and we are going to see a major reversal. Both pairs (gbp/jpy and eur/jpy) meet the criteria. Pound Yen pair made a lower high (highest point after correction) on the 14^th of March and failed to go beyond that. Euro Yen pair reached the lower high (the second peak) on the 11^th of March and now is playing around with the lowest point that was reached during major correction (26^th of February). A failure to reach higher highs shows that the uptrend clearly lost its’ steam and a possibility of a downtrend increases sharply. Trendline break and lower high rules can be seen not only in gbp/jpy and eur/jpy, but also in cad/jpy and partly in nzd/jpy (it modestly went above the peak of 14^th of February and then went down). 

Bank of Japan has so far done only verbal promises about stimulus (no real actions yet)

Real Yen downtrend started when Bank of Japan and government officials started talking about necessity of stimulus, weaker Yen, end of deflation and other bla-bla-bla type of stuff. However, nothing has really been done in practice yet. These were just talks. Today we gonna see how much of what they were planning to implement will be done in reality (interest rate decision release should be accompanied by some kind of statement about stimulus). The market has already priced in huge stimulus on the part of the Bank of Japan. If it does just that or less, Yen will definitely strengthen and the downtrend will shift to uptrend. I do expect 1000 pips + collapse in most of Yen pairs from current levels. 

Of course, you never know what the Central Bank of Japan officials have prepared. They may introduce much stronger stimulus than they had initially planned. If, however, they just do what they promised Yen will definitely rise as most of the future events are already priced in by the market. So, let us wait and see what happens today and for the remaining of the week. 

I do not expect the downtrend to be very fast (1000 pips a day), but downtrends are usually faster than uptrends, so I am getting ready for a nice ride down. I am risking around 10 percent of my deposit on the trade at the moment. Even if I expect to increase my capital substantially I always place stops and on these longer term trades I would not risk more than 15 percent. I risk 2-3 percent per trade on my day trades. When you prepare for a trade you have to think in terms how much you can afford to lose, not how much you are going to make. This is how you control risk. You do not want to risk all of your capital on some probable windfall. No, my plan firstly is to stay in the market long term and secondly – to make money. Opportunities always arise, so I do not need to worry about squeezing every possible dollar from the market or trying to do a ‘home run’ every week. This is not healthy psychologically. Think about risks first and profits will take care after themselves. 

Entry levels

A classical way to jump into a starting trend is on the break of the major correction low. That is the place where the second point of the trendline is drawn. For eur/jpy it would be a break of 118.70 level (February 25^th low). For gbp/jpy it would be a break of 137.81 (February 26^th low). I would follow the rule for eur/jpy pair as I do not see other better way to enter a possible downtrend in the pair. However, this rule might be somewhat modified looking at the current technical structure of some Yen pairs. I basically mean gbp/jpy. There is still quite a substantial distance to the major correction low. Around 300 pips at the time of writing. If you look at the daily chart of the pair you will see that while trying to reach a previous peak the pair failed and formed a nice reversal pattern (8^th of March through the 1^st of April) with support at 142.00 level. That level was another choice for entry having in mind that trendline was broken and the pair failed to reach previous high. I did enter short below 142.00 and placed a stop loss at 143.45. If I am wrong and the downtrend will not start any time soon I will not lose much. If, however, the pair collapses and reach major correction low I will already have a substantial profit and be able to consider extra positions on the way down and increase my profits as a result. So, I have taken care of my risk (losses) and if my predictions are right profits will take care after themselves. If the break really occurs I will open extra positions in other positions and try to do some pyramiding too. 

Possible exits

Exits are a little more complicated and far more important than your entries. You never know how far the markets will go. My targets maybe too optimistic and price may never go to the place I assumed it will go to. Therefore it is essential to trail my stops. In case of a downtrend, weekly highs could be a possibility. This is for intermediate and long term trends. That is what I am expecting for Yen pairs. 

One way that I will use this time is placing some of my exits near previous resistance, which is now support. Looking at weekly chart I see that 134.00 (for gbp/jpy pair) is a logical place to close at least some of my positions. 

Another is to exit at a place where the move really started accelerating. The philosophy behind this kind of closing a trade is the idea that price always comes back to the place it came from. Applying the rule for closing a trade above the support it would be 130.00 level for gbp/jpy.

The third possible scenario is to calculate the difference between the top of the move with the major correction low and subtract the difference from the major correction low. The difference between the top and the major correction low (in this case is about 1000 pips). So, the last closing target would be 127.00 level (almost exactly the place where the price started accelerating upwards). 

You can do your own calculations for eur/jpy or any other Yen pair. If the opposite trend does develop all of the pairs will fall (Yen will rise). If you decide to take these short trades be sure to calculate your risks. And be even more careful if you decide to pyramid your trades (open a number of positions). 

As you can see the rewards for these kind of long term trades are much bigger than possible losses. This is the reason I am willing to risk more than I do on my swing or day trades. 

Do not forget that big money is in big moves and fortunes are made when one identifies a change in trade and executes his trades in the direction of the move with proper entries and exit levels. 

Let us see what happens with Yen!

Ok. I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

eur/jpy

Fundamental news does not have lasting effects (11^th of February 2013)

Comments from Japan did not make long lasting effects on the market. Euro rallied more than 300 pips today. I hope you see that we need more important fundamental things to reverse this upward rally. One could have traded a breakout of an inverted head and shoulders (reversal) pattern by buying 125.50 break. The pair rallied a little bit more than 100 pips. I have no position in the pair now. Looking at other pairs that might rally any time soon (for example eur/usd)!

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Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

ECB rate decision (7^th of February 2013)

Euro Yen pair could have been traded in pretty the same fashion as eur/usd after press conference with Draghi. Sell stop order should have been placed below 125.93 level with take profit at an even number of 125.00 and stop loss 30 pips above the entry level. I do not mean to say that the move downwards is already over (although it might be). However, you can never know how strong the move will be and how long it will last. So, it is impossible to take all possible profit. You should be in the market as long as there is momentum and then get out. In this way you would catch the move when it is at the strongest. 

New highs (5^th of February 2013)

Nobody is waiting for ECB and BOE in eur/jpy pair. It has gone to new highs today. It shows that traders do not expect any changes in monetary policy of European and England central banks. That is clear by looking at price action in most trending pairs whether pound (to the downside) or Euro (to the upside). We should wait now for some changes in Bank of Japan policy to see eur/jpy to go down. Until then the trend is clearly and irrefutably upwards.

Euro the biggest winner (4^th of February 2013)

Japanese Yen has been the biggest loser, while Euro the biggest winner in recent months. If a trend changes this will reverse and Yen can be the biggest winner and Euro the biggest loser. Have this in mind. This collapse of Yen has fundamental reasons. Bank of Japan and Japanese politicians have been scaring investors with quantitative easing and stimulus. However, they haven’t done that yet. If they fail to act on their words market may reverse very dramatically as easing and interventions have already been priced in. So, any future comments from BOJ should be seriously taken in account. Euro Japanese Yen pair may reverse any time. 

Non farm payrolls data ahead (2^nd of February 2013)

All market participants are impatiently waiting for Non Farm payrolls data. There is expectation that if the news is disappointing dollar will be hurt badly and Yen would eventually rise. In my opinion we will see worse than expected data and the above mentioned scenario is very likely. In this case correlation between Yen and dollar moves in tandem would disappear at least for some time. One could attempt placing tiny sell stop orders below 4 hour candles in eur/jpy in case market starts moving sharply down. Support is now at 124.10-123.80 level.

Final resistance possibly reached (30^th of January 2013)

My indicated final resistance level in eur/jpy has been reached. So, we have to see what happens now. It may not be final point after all. However, FED rate decision is in two hours and anything can happen. There won’t probably be something radical said in their release, but better be safe than sorry. I am not entering any trades before the news comes out. One possibility to trade the event would be to place long orders above 4 hour charts and short orders below 4 hour charts. Expect volatility during the first minutes after release. Do not bet too much!

Weekly chart analysis (28^th of January 2013)

I have already shown you a weekly chart of eur/jpy pointing out that the pair is very close to very important weekly resistance. When a security reaches some weekly resistance point after rallying for half a year you can expect a major reversal. All of those bearish comments from BOJ and Japanese politicians might turn to be useless if they start changing their tone soon and eur/jpy will reverse and head down to 111.00 level. Waiting for bearish patterns on daily charts!

New top? (25^th of January 2013)

Today eur/jpy pair made new highs. What a strong mover! The pair has rallied around 2900 pips since its’ bottom on the 22^nd of July 2012. That is the biggest move in five years since the financial crisis of 2008 when eur/jpy crashed like a rock thousands of pips. Now, when you see such overextended moves you start asking yourself if it is not near its’ top. It might be! At least I think so. I looked at a weekly chart today and saw that the pair is very near a peak of 2011 (123.35). I think that would be a logical point for a pair to make some sort of a reversal. I even think it might go to as low as 111.40 – its breakout zone upwards. Anyway, let us see what happens today and how next week begins to spot some possible signs of a turn around. 

Yen bulls win (23^rd of January 2013)

Euro has been fighting hard Yen bulls, but victory is not seen yet. At the moment the fight is going on for 118.30 level, resistance that Euro bulls find it difficult to break. Support at 117.00 level does not look very strong too. I would go long if the pair goes beyond the above mentioned resistance. I am not shorting the pair yet. Waiting for 116.45 support to be reached. Then I need to see what happens there. I still hope the upward move in eur/jpy is not over yet. 

London session price action (22^nd of January 2013)

We have seen pretty interesting price action in the pair today. Prices collapsed in the London session and then bounced back within 1 hour time. Move upwards was around 125 pips. Wow! That is type of day trading range most of us want to see regularly. What else does it tell us? We will probably see higher prices in eur/jpy. It may not mean that 120.70 will be taken out, but I expect the pair will try to go to 120.00 level. It may fail there and form a nice head and shoulders pattern. That could take eur/jpy to at least 113.00 level. Yes, I expect the pair to crash soon. However, this week it will try to 120.00 area. 

Lower prices ahead (21^st of January 2013)

Looking from short term perspective eur jpy should see lower prices now. If you look at hourly chart you can clearly see lower highs and lower lows in the pair. The first support level is within the reach at 118.30. It can be reached within European and American sessions today. Then 117.65 should stall further advance of Euro bulls. However, if that is reached remains a big question. 200sma runs right below 118.30 on 1 hour chart and provides important support. From daily perspective shorting below current support 118.85 seems like a good day trading opportunity. 

Reversal pattern at key level (18^th of January 2013)

Euro managed to break resistance of 120.00 and almost reached 121.00, but it reversed from there by forming a reversal pattern and is now probably going to hit support of 118.85. Trend for eur/jpy remains bullish and more support is at 118.25-117.65. I believe the latter support will hold. We may see some more profit taking today or when markets open on Sunday, but as long as no fundamental factors show otherwise Yen is going to weaken and Euro is going to strengthen. Buying dips near support is an ultimate day trading strategy for now. 

Bulls have upper hand (17^th of January 2013)

You do remember my words about eur/jpy being bullish. What a rally we have witnessed today! 250 pips move and counting! You could not predict such a big rally, but if you look at a chart below you can clearly see a bullish reversal pattern at a bottom (looks like 123 pattern). That indicated that bearish move is over and we can jump back into a bullish trend. Buying above 118.05-20 could have been a nice breakout trade for those who wanted to get back into a trend. 120.00 resistance level is now within reach of a hand. If you missed the trade, wait for pullbacks. It is important to be on time with your day trade. Trend for the pair is bullish as long as signs of a stronger reversal appear. 

Trying to find support (16^th of January 2013)

Although eur/jpy has fallen sharply over a few days it looks a little bit bullish at the moment. The pair has hit 200 simple moving average on 1 hour chart and formed two bullish candles on 4 hour chart. The pair is trying to take away 117.65 resistance and it looks it is going to be successful this time. Two levels of resistance are on its way at 118.25 and 118.85. I will check how the pair looks at the beginning of tomorrow’s European session and make a decision to trade it or not.

Strong move down (15^th of January 2013)

eur/jpy has collapsed today for about 220 pips. It tells me that a lot of Euro longs have been closed. The pair hit 117.65 support and it day down trend seems to be over for now. We should not forget that the pair has been in a strong uptrend for about two months. Reversal and downtrend can start any time and it will probably be very dramatic as unwinding long Euro positions cause Yen to appreciate very fast. If an uptrend is finished one could try a breakout trade below current support of 117.65. If you see long bullish candles indicating continuation of a trend you can wait enter some longs above the most recent resistance that now stands at 118.30. 

Retracement is possible (11^th of January 2013)

After rallying so much yesterday eur/jpy will probably rest for some time or even make a retracement. I did not expect the pair to jump so much in such a short period of time. Yesterday’s move was around 370 pips. I do not rule a possibility that the bullish trend in eur/jpy maybe over too. I noticed years ago, that at the end of a trend we usually have a huge move in the direction of a trend and then a very strong bounce. Let us see if there is a bounce in the pair now. Hourly support comes at 117.65. Resistance is at 118.26. Again you can see a small triangle on 1 hour chart, which can be both bullish and bearish. Bearish if the above mentioned support is broken downwards and bullish if the resistance of 118.26 taken out. Breakout trading strategy could be applied in the situation.

If the pair continues moving higher next level of resistance is at 119.50. Be patient and have a nice weekend.  

Bullish triangle broken upwards (10^th of January 2013)

eur/jpy pair displays very strong bullish sentiment. The bullish triangle that I have mentioned in my previous post has been broken on the upside and prices have rallied around 150 already today. Another important resistance of 116.00 was broken and it has now become a strong support. Resistance stands at an even number of 117.00 with more coming at 117.80. News from Europe (interest rate decision) failed to weaken Euro and we can use the phrase ‘anything that does not break makes us stronger’ as an example here as an argument for strengthening of the Euro. 

Technical picture (8^th of January 2013)

The technical picture of the pair seems a little bullish. You can see a bullish triangle on 4 and 1 hour charts, which indicates that higher prices are in store for us. A break of 115.23 could be a good point to enter long orders. Another bullish sign is that 50 sma acts as support on 4 hour chart. And eur/jpy  is above 200sma on both 1hour and 4 hour charts. 

From fundamental point of view nothing has changed. Everybody waits for news from ECB. Do not take big positions before the news is released and comments in press conference are made. 

eur/jpy outlook (7^th of January 2013)

eur/jpy pair has been in a strong uptrend since the end of July 2012 after ECB president Mario Draghi announced that European Central Bank is going to everything in order to save Euro. Real strength of Euro came from bearish announcements by the Bank of Japan that seems to be always in the mood of quantitative easing (as if there is anything left to ease!). This started on the 14^th of November (last year) and Yen has been falling dramatically since then. 

I have indicated about possibility of reversal in my posts earlier, but one should remember that it is not wise to start going short before one sees clear signs of reversal. There haven’t been many of these recently. You can now see a cluster of daily candles and the pair jumping between 113.65-115.30 levels. That is a pretty tight cage and movement to any direction is expected any time. 

On 1 and 4 hour charts you can clearly see short term range contracting, which usually means that a move is coming. Price is near 50 sma on 4 hour chart and it serves as support for the time being. Stronger support coming at 113.60. Resistance is at 115.00 now. If you are a swing trader wait for the pair to move out of its’ short term range. The coming Thursday may present you with this opportunity as ECB will announce its’ interest rate decision and hold a press conference.