Whenever we trade, it really boils down to two questions: Where is my risk? What is my reward?
Okay, well obviously there are more questions you will ask when placing a trade. However, in the title of this blog I simply state “I am buying JPY.” Pretty simple, correct? I am, indeed, buying JPY and have been for a few days. Let me show you one chart that really puts risk/reward into perspective:
Now that you have seen the weekly chart about 20 years of data, you can see that my risk for my short is somewhere over 106.00, and my take profit is somewhere down below 100.00.
As you know, when we trade we don’t just ask “what is my risk vs. reward?” but also look at probabilities. So, with this trade I want to show you a couple more charts that enhance my probabilities of this trade working in my favor.
SPX futures are at 127% extension of pre crisis to post crisis levels. Is the great bull market over? I doubt it, but is it time for a pause and correction? Perhaps. (the USD/JPY and SPX tend to move together, or parallel, and correlate strongly)
False breakdown of the 30 year? I am not sure, however the USD/JPY and yields tend to move in a “parallel” relationship (so, it would be opposite this chart movement).
Nikkei futures sitting on critical support here. I am sure with the divergent RSI, some bulls maybe a little nervous here. (USD/JPY and Nikkei futures “enjoy” a very strong parallel relationship currently)
When they all move, they tend to move together. (This could pose a trade for you even if you do not trade the FX market. Candle chart – Nikkei, Yellow Line Chart – USD/JPY, Blue Line Chart – ZB continuous)
Some correlations have been off this last year, but I think 2014 a lot will “re-correlate” quite nicely.
(posting here on contrariancorner.com I must add it was KTF that succinctly said on the Wizetrade Daily broadcast in Dec 2012 that the "year of 2013 correlations would be off," and he was 100% correct!)
Tune into my daily broadcasts at 7AM ET on the Morning EDGE, link located here.
Chief Currency Strategist, Wizetrade
Disclaimer: I am long JPY via USD/JPY and a few other cross rates. I plan on staying that way for a few weeks unless the USD/JPY rallies above 106.50 on a weekly closing basis.