This pair has lost 579 pips since Friday. If you do short-term trading, there’s a tendency to look at any move over a couple of hundred pips as huge. It’s helpful to look at longer-term charts to put any given move in context.
On the weekly chart for EURJPY, you see that it has been in a trading range for several months, largely bound by 126/127 on the bottom (with one dip down to 124.38) and 138/139 on the top. It’s a honey of a range—there have been good opportunities to make money since April.
The declining price of the last few days has brought the pair down to the bottom of the range. One thing to keep in mind is that we’re at year-end. People are taking profits; there’s less liquidity. You want to be careful as this can lead to moves that are quick and sometimes exaggerated. Another issue is that the yen is strengthening which of course will drive down the yen crosses.
That said, nobody has a crystal ball as to whether this range will hold. If they say they do, they’re delusional or lying. As traders, though, we don’t need to know that. We need to look at the probabilities and the probability says that unless this pair closes below 127, the bottom of the range is a place to look for buying opportunities. If the pair did close below 127, it would hint that the rectangle was breaking up and you’d want to look for a rally to sell. In either case, you must use tight stops.
As of now, my short trade from 133.03 is at +314 pips profit. I took some more profits off at +360 pips earlier this morning. What’s left is obviously profit stopped and I’ll either continue to trail that stop or reverse. Here’s the weekly:
© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.
My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.