USDJPY - Looking at Exits, when to tap out?

10:17 AM

We covered in depth the reason why I wanted to enter this trade. But like Soros mantra goes, he is always looking for proof that he is wrong. We shall do the same.

In Jujitsu and MMA if we do not tap, we lose conciousness, in trading this means losing money.

This weekend has been sobering for me since the 115.10 failed to produce a significant movement, only a tiny reversal. Depending on what Japan trading does in a few hours, this failure of resistance shows that perhaps the order bias we were expecting was wrong.

If so, when can I accept that I was wrong? And if I am correct, but sentiment hits me, how much further are we willing to accept before we tap?


1) Technical Analysis

This section will not make any sense.

- All indicators we are looking at show overbought.
- Support and Resistance levels have been broken without much effect
- On the 4hr chart, 1-day Chart as well as the weekly chart, we saw exhaustion on all the timeframes but the slowing momentum failed to produce a reversal.

To try and analyze this via technical data will not produce results.

Thesis holds wrong. Initially, i was counting on resistance levels and hoping there was exhaustion, it did not hold.

2) History

One of the voices in my head is that the USDJPY tends to moves consistently in a unilateral direction.

One only needs to go back to October 2014 to see an equally meteoric rise.

However, upon analysis, I am not willing to accept this as a reasonable explanation as in those moments we had paradigm shifts in the economy. Abenomics produced "helicopter money" and in turn saw a rapid increase in price.

These shifts are justified and with reason. Our current Trump rally makes no sense.

Thesis holds true.

3) Fundamentals

While i have always said that the USDJPY has been too low and a recovery is necessary for the Japanese economy, this rise has been a bit too quick.

With no real paradigm shifts such as that mentioned above, there is no reason why the sudden optimism of USD or otherwise for JPY.

As mentioned in my initial post, Trump is good for the economy in the short run via tax cuts. But I think his extended policies going further into his term will be negative.

And with questions on the validity of Trumps election because of the supposed cyber attacks, does this reaction by the USDJPY justified? I think not.

Thesis holds true.

4) Wednesday's Rate Decision

Finally, the main bit that i have been waiting so anxiously for, rate decision. 
There are two parts to the Fed decision coming up

a) Are they going to increase?
b) how many times in 2017?

Most people believe that Wednesday will call for an increase in Fed interest rate, and some are saying what is more interesting is how many for 2017. The FED has set indication at 2 hikes, but an indication of more is said to cause this cross to crash as risk aversion sets in.

Do I think they will signal more than 2? Nope, regulators are always Dovish always. It is part of their vested interest.

With that said, market may think differently just like the election. And honestly this is probably my only indication to prove my thesis is wrong, a strong move in either direction. However, we have to EXTREMELY careful with the initial reaction, the market almost always reacts in opposite to what the true direction is.

This again goes back to my post on broker interest (read here)

A comfortable gap for me will be 100pip defense, tiny compared to the 400 pip movement we saw during the Trump rally. If we do not have this before the rate decision, we may either move the SL or get out of my trade

Thesis failure possible depending on Price Action on Wednesday.

5) Conclusion
I do not have a good sense of why the cross has gone higher, but the thesis is not wrong as yet.

I will not hold on to this if we hit SL, we don’t want the USDJPY becoming like the Japanese bonds (aka widow maker, not kidding look it up)

Even if I am right, though, we have to take the risk that I can be wrong because of volatility.

My only comfort is our risk is half of what we usually risk.

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