USDJPY: The Trade I hope to be wrong

11:39 PM




Summary, i am doing an uncanny short
- not within any system of mine, just a good thesis with excellent risk reward
- Market could possibly be semi-manipulated (and humans are greedy beyond what is respectable?) if we will win on this trade
- i hope i lose

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I hate losing money, i always want to win.

But this time, i hope to lose because it attacks the very foundations of the free markets.

Maybe it is because of the latest book i have been reading called "The Road to Ruin" by James Rickarads.

I love the book, it is an excellent exercise in questioning some basics of finance. Usage of recursive models vs. dynamic models, thinking about the fiat currency structure, looking to the next global bailout, currency wars etc.

But one of the recurring thoughts that i have when reading this is, human beings are greedy and the rich get richer because of an inner circle and people are taking advantage of whatever they can. To date, this book has probably taken me the longest to get through just because i need to stop listening to look out the window and make sure the world is not too dark and gloomy.

That brings me to this new thesis, it is a short-lived one, 4 weeks max, but one which is tradable nonetheless. It is rooted in conspiracy theories over market behavior but given the circumstances, the stars may line up.

Although i usually trade shorter time frames and do not trade a 15min chart, this is an exception.

Short USDJPY at114.90, SL at 116.85 (-195 pips) TP: 108.20 (+670 pips).
Risk taken (1/2 risk or 1%)

Yes peeps, the risk reward ratio is insane for this, but hear me out.

I start with the two most common factors:

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1) Technicals

Fibonacci retracements are one of my favorite technical indicators, it merely forms a basis of how 'pretty" a chart looks. If Fibbs are not met, to traders, the chart looks off.

Myself included, i instinctively want to short this currency because it has taken such a big run up since the Trump rally. If the whole world feels the same way and shorts the market, it will come down to where it looks pretty. But yet, it has not come down to where we would like to see it. Instead, we  are stuck in a range, only looking to get higher.






2) Fundamentals

Similar to the SPX, this just keeps going up & up. Is the Trump rally so strong? My opinion, NO. Is the rally deserving, Yes! Net positive for US.

But he will force onshore production and the likely increase in the cost of production, and decrease in overseas sales. Tax cuts can only get one so far. 

We will probably enter a period of slow growth.

Lately, Fundamental news has not stopped the rally, good or bad. Just like the SPX this cross keeps going up & up & consolidates & consolidates. 

Also given the FOMC rate increase, the JPY provides the lowest form of borrowing, returning to the carry trading fundamentals.

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So if we are set to go lower, why haven't we? Maybe it is from reading too much into Rickhards book, but i suspect the powers at be(banks/brokers/big boys etc) are waiting, waiting to increase their bonus checks. 

Here a some more less conventional factors that could affect this trade

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3) Probable cause

So if the two above do not make sense and we should in theory be headed lower, why haven't we? Maybe we need a catalyst. FOMC anyone? After all the last rate hike last December did cause a dip in the USDJPY.

Since sudden moves are frowned upon and are investigated (see GBPUSD), FOMC provides a perfect cover. 

This fundamentally makes little sense as recent prices already moved with the interest rate hike in mind. Consensus on the street is near 100% that a rate hike is happening, but a move down allows the big boys to blame the market for adverse movement. 


4) Order Book

There is a huge amount of orders at 115.00 if price is hit. (See Forexlive.com), what better way to make money then to hit peoples SL (or barrier options) and drive the price downwards?


5) Usual pullback

But also you have to imagine that before the Trump rally happened, we must have had a lot of derivatives that were used to hedge the USDJPY. This is one of the basis of my old 4hr trading system, there is too much derivatives, special party interest and human behaviours to allow for a unilateral move in one direction without correction.

For this cross, it is likely we have not yet seen the unwinding of the positions, especially if so not prices would have not going up so fast and furiously. A simultaneous unwind should send the cross lower and fast.

6) COT report

This one is tricky, but according to http://humbletraders.com/commitments-of-traders-for-forex-trader/ it is a very telling sign.

1) Commercial Traders are net long, for the first time since last December and like we mentioned, last year the cross fell in December

2)  If "Open interest increases with falling price, the bear market is strong." While not falling, price has significantly slowed down. 

3) Only speculators behaviours are not with us as they are trend followers and would be most bullish at the end of the bull market and most bearish at the end of a bear market. 

The speculators have just turned from positive to negative. Perhaps indicating there is more upside to go.


7) TOM 

Turn-of-the-month is a simple concept that is rooted in behavioral finance. It states that due to accounting reporting periods, revenue is artificially propped up to ensure the stated reporting period looks better. 

In this case, if a bank would like to have a stellar year and a bigger fatter bonus check, making sure the unprofitable positions are closed and speculative bets are positive is a sure fire way to do so.

FOMC is about 2 weeks away from December end, a big reporting close for many companies. This gives the cross plenty of time to go lower and allow big boys to unwind.

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In trading, there is a concept that is thrown around a lot. It is called "confluence" if all the different indicators add up then it is a high probability bet. Although used mostly in the technical analysis, i think the term is apt here.

Right now, the thesis and confluence of factors would lead me to believe that the big boys have a real shot at making a lot of money. However, if this trade is successful, it confirms a well-known secret, the markets are not really "free" as the powers-at-be would have you believe, but manipulated ones where big boys have an advantage. (and maybe the world is run by greedy, power hungry people?)


I am trading this because all facts point me in a certain direction plus the risk reward is too good to ignore. But for the sake of all that is good, i hope that i am wrong.

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