The Forex Chronicles

Beware of Spikes in GBP/JPY, EUR/JPY, USD/JPY, AUD/JPY Pairs

by Leave a Comment

Crazy Spikes in Yen Pairs

If you trade the forex markets every day and follow some of the major yen pairs in particular, such as the GBP/JPY, EUR/JPY, USD/JPY and AUD/JPY, for example, you may have noticed that these have all had some huge spikes at various times in the last few weeks.

Of course it’s normal to see some big price spikes after major economic data releases, but with these yen pairs we have seen some huge movements on all of these pairs at the same time for no apparent reason.

The latest big price spike occurred early this morning at approximately 7.45 AM UK time, when there was no news scheduled on the economic calendar.

You can see on the 5-minute charts of the GBP/JPY, EUR/JPY and USD/JPY below how the price spiked sharply downwards before bouncing back upwards again almost immediately:

What is Causing These Price Spikes on the Yen?

The most likely explanation is that the Bank of Japan are intervening to try to strengthen the yen, particularly with the USD/JPY continuing to try to push above the key 1.50 level, although nobody knows for sure if this is true or not.

If it is, it doesn’t seem to be working because whenever there is a huge spike down, the price always bounces back straight away.

Why is This A Big Problem for Traders?

These spikes may not necessarily pose a risk for longer term traders who trade the daily, weekly or monthly timeframes, for example, but for those short-term traders who trade the lower timeframes, they can potentially destroy your account.

That’s because even if you use a relatively tight stop loss of 20 points, the price could easily gap down 80-100 points and your stop loss would be executed at this level instead.

Therefore you could incur huge losses on your personal account, and potentially lose a prop firm account if they have a low drawdown limit.

Indeed in recent weeks there have been quite a few traders on X (formerly Twitter) who have said that they lost their prop account because of one of these seemingly random spikes.

What is the Solution to this Problem?

If you want to protect your accounts, I think the most obvious solution is to simply stop trading the yen pairs altogether until the markets settle down and these sharp spikes stop happening.

There are plenty of other pairs that you can trade that don’t seem to have this problem, such as the GBP/USD, EUR/USD, EUR/GBP, AUD/USD, AUD/NZD, USD/CAD, USD/CHF etc.

At the present time, it is simply not worth the risk trading any of the yen pairs. Capital preservation is everything in this profession.

Possible Inside Bar Breakout On GBP/JPY Pair – 29 November 2018

by Leave a Comment

Introduction

The GBP pairs have been almost impossible to trade just recently because of the ongoing uncertainties surrounding Brexit, which is why it is sometimes a good idea to just wait for a breakout from an established trading range.

Therefore with that in mind, it may be worth taking a look at the GBP/JPY pair right now because there has recently been a series of four consecutive inside bars (five if you include Sunday’s trading session).

So in other words, after the large candlestick from last Thursday, the price has traded within the range of this candle every day since then, as you can see in the chart below:

GBPJPY Inside Bars - 29 November 2018

Why is This Significant?

These inside bars highlight a period of uncertainty because the price has failed to break above or below the respective high and low of this candle since then.

In addition, you will also notice that the EMAs that I like to use (20, 50, 100 and 200) are all closely bunched together, which often occurs before a breakout.

Therefore when the price does eventually break above or below this initial candle from last Thursday, there may well be a decent breakout.

Trading Opportunity

With four consecutive inside bars, the likelihood of a major breakout continues to grow, so it might be a good strategy to enter a long order a few pips above the high of the initial candle (14595.9), and enter a short order a few pips below the low of this candle (14426.5) in case there is a downward breakout.

There is the potential for the price to break through the EMA (200) if there is an upwards breakout, and this may be a good place to close half the position, while the price could test the recent lows at around 142.50 if there is a downward breakout.

However, as always, I am not offering any trading advice and am not recommending any trades. These are just my own personal views and observations.

Possible Pennant Breakout for GBP/JPY Pair in October 2018

by Leave a Comment

Brexit Weighing Heavily on GBP Pairs

The GBP pairs continues to be heavily influenced by Brexit, which obviously makes them difficult to trade because one piece of positive or negative news can result in huge price movements in either direction.

Therefore if you do want to trade these pairs, it is probably best to concentrate solely on technical analysis, use strict stop losses to hopefully avoid any major wipeouts and be aware of when any Brexit negotiations or speeches are taking place.

With this in mind, one of the most interesting looking pairs right now is the GBP/JPY pair because after trending upwards for the last few months, we have seen some indecisiveness in recent weeks and a pennant has formed on the daily price chart:

GBPJPY Pennant - October 2018

Pennant Breakout?

Pennant breakouts can be very profitable to trade because many traders will spot the same pattern and will trade the subsequent breakout, and so it might be worth watching for a possible breakout on the GBP/JPY pair.

A breakout to the upside would see a resumption of the previous uptrend, and if the price could close strongly above the 150.00 level, which is a major round number and a big psychological resistance level, there is the potential for the price to move higher and test the next resistance level at 154.00, which is a previous high from April.

A breakout to the downside would see a resumption of the long-term downward trend that has been present throughout 2018, and we could potentially see a much stronger price move.

Using fibonacci retracement levels as a guide, a 50% retracement of the previous upward trend would give a price target of 144.81, whilst a 61.8% or 100% retracement would give price targets of 143.65 and 140.00 respectively.

Alternatively, another popular strategy to use when trading pennant breakouts is to derive your target prices from the width of the pennant (from the high to the low).

So regardless of the direction of the breakout, your exit price would be equivalent to the width of the pennant, which in this case is around 315 points, or 2 x the width of the pennant if you are confident of a big move, which would be around 630 points.

Final Thoughts

As always, I am not recommending any trades or offering any signals. These are just my own personal thoughts and opinions.

I just want to highlight a pennant that has formed on the GBP/JPY pair and discuss pennant breakouts in general because these can be very profitable when you get the right set-up.

Furthermore, although not all of these subsequent breakouts turn out to be profitable, there is the potential for a big price move in this instance because any major Brexit news could be the catalyst that causes the price to break strongly out of its narrow trading range.

Inside Bar Breakouts On GBP/JPY And Bitcoin From Last Month

by Leave a Comment

Introduction

As I have mentioned previously on this site, inside bar breakouts are some of the my favorite trading patterns to trade because they will often yield some excellent profits.

This is particularly true when these inside bar breakouts come towards the end of a trend because they often provide solid confirmation that a reversal is taking place.

So with that in mind, I thought I would share you two profitable inside bar breakouts that occurred last month, ie August 2018, to give you an idea of how you can potentially trade these breakouts in the future.

Bitcoin Inside Bar Breakout

The first breakout is one that I have already discussed already in a previous blog post. On this occasion I actually discussed an inside bar breakout opportunity before it occurred, when I highlighted Bitcoin’s narrow trading range.

As you can see from the chart below, the price was trading sideways for long periods of time with no clear direction, with all the inside bar candles trading within the range of the initial bar.

Bitcoin Price Chart - August 2018

This is always a good set-up for a potential breakout, and this is what subsequently happened:

Bitcoin Inside Bar Breakout - August 2018

From a trading perspective, this wasn’t a perfect set-up because the breakout candle wasn’t exactly a decisive one. It is always a better signal when the price breaks strongly upwards or downwards out of its narrow trading range, but nevertheless this is one that would still have yielded decent profits of nearly 700 points so far if you had entered at the closing price of the first breakout candle.

GBP/JPY Inside Bar Breakout

Another decent set-up from last month occurred on the daily chart of the GBP/JPY pair. This pair had fallen sharply, along with many of the other GBP pairs, and during a period of consolidation, several inside bars had started to form.

Therefore when the price closed above the initial candle, this was a good opportunity to open a new long position and trade the breakout and the reversal.

GBPJPY Inside Bar Breakout - August 2018

As you can see from the chart above, this had a much stronger breakout candle and would also have yielded some decent returns. With the momentum gathered from the positive Brexit news that was starting to emerge, the price moved around 250 points higher from the closing price of the breakout candle, and although it has since dropped back a little, it could still go higher.

Final Thoughts

It is worth mentioning that these inside bar breakouts don’t occur that often across all of the major currency pairs, but when they do occur, they can be very profitable when you get the right set-up.

I would also add that I would feel more confident trading a major currency pair, such as the GBP/JPY pair, for example, rather than a cryptocurrency such as Bitcoin simply because they are completely unregulated and have large spreads, and no-one really knows what could happen in the future. They could easily rise or fall thousands of dollars in a single day, and subsequently destroy your capital if you are not careful.