The downmove in JPYUSD (here the E-Micro future) starting Sept 2012 can be analysed into 3 ABCDs - with different As but the same B and C, followed by sawtooth corrective pattern, which itself breaks into ABCDs.
These little ABCDs have been a bit atypical, retracing between roughly 0.18 and 0.68 of the previous move. This may be in part because the currency pair is critical to risk appetite via the carry trade, and closely managed by central banks, which may have sought to reignite risk-on behaviour by halting the slide at an appropriate level and reducing the volatility of this pair.
The 0.18-0.68 oscillation suggests a (minor) impending long opportunity at 1.006 after bouncing around .9984) ultimate target 1.0025.
Much more enticing however, is the prospect that the major ABCDs will complete, potentially as far as 0.7607. Given the significance of this currency pair this is a stretch: the mid-point of A1BCD, 0.9127, is a bit more realistic.
The dampening corrective bounce, if it continues, would offer an opportunity to get short for this with minimal risk: entry @1.0188, stop @1.0260 (~$70 risk per 10k contract). Profit taking @ A2BCD's CD midpoint, 0.9985. RRR 15 if JPYUSD goes to 0.9117.
4-5 months of declining realised volatility may also make put options an attractively priced way to play a breakout. (Perhaps even non-directionally via a straddle.)
Risk: perhaps this pattern is too obvious? If so, the third bounce might not materialise, or deviate from the 0.18-0.68 pattern, stopping this trade out. Resistance around 1.004, the midpoint of CD3, has been firm, further bounces look possible there.
Disclosure: I'm just making this stuff up. & I've only looked at the continuous price data. Comments welcome, and good luck!
Comments
cryptoyoda
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Thanks. :) Actually I should credit Zero Hedge - for documenting how central banks seem to be using JPYUSD as a risk lever & RMB Group for drawing attention to this pattern in the pair.
I guess all pennants must have these odd, damped oscillation style declining retracements. When I realised the two bounces were so regular (in proportion) I thought 'wow, this could be a way to predict the turning points further ahead'. And the shrinking moves seem to gives a rare opportunity to enter a trade with a pretty tight stop, without having to move down to shorter term charts.
RA recommends entering with a multiple of 4 lots, taking profits on 2 at P and 1 at D. I think like that taking partial advantage or a 15 RRR is possible. Problem can be the minimum lot size. (I still need training wheels :p )
ForceFollower
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I trade all in, all out. I tried scaling in and out and it didn't work for me - when I lost, I lost on a full position; when I won, I took small profit on a close target and then again, if lucky, a small profit on a distant target. So I don't even think of positions with RRR of more than 5R (I'm OK with the profit size of 1R-3R and a loss of 1R. My 1R is 1% of my current equity/net asset value - I trade with OANDA, using MetaTrader4 - I put more emphasis on success rate, ie. I have more profitable trades than unprofitable ones).
The dampening effect of these oscillations (possibly a large pennant by some technicians) says there's some vertical move imminent, probably with the trend, which in your chart is down. The only problem I have with it, I still can't see a reason, why the U.S. dollar should suddenly become so strong - it's on my weaklings' list now, along with the JPY, CAD and CHF. But there's probably something stewing in the oven and I can only smell it now but can't see it well (if you read me well, English is not my native language).
cryptoyoda
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Well, he doesn't scale in. I don't know what kind of win/lose percentage he expects to get, but he values being able to let profits run on a partial position.
Re the USD strengthening, I think that could happen if there's marked deterioration in growth prospects elsewhere. But the JPY is a pretty small share even in the DXY index; I think 7%. And that omits emerging market CCYs anyway. So there could be quite a big downmove in JPYUSD without the USD showing broad strength. (I think this has happened in the last few months, bringing DXY below 80 despite USD strengthening 20% vs JPY earlier.)
(Your English is really very good BTW.)
ForceFollower
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Your trade idea sounds (or reads) like some paid, elaborate, professional, investment-bank's study for the best clients. Hard to argue with your observartions. You have clearly applied the R.A.'s technique - I think I understand it better now. It was a lot of work on your part. I will follow your chart to see how it unfolds. As I'm a pure forex trader, I prefer spot USD/JPY, but your chart is just an inversion of it. Huge RRR - I wouldn't be able to run my profits up to 15R, but it may be possible. Your midpoint target is OK, though me - I'd be happy to take profit at 38.2% of CD (based on the absolute AB measure, an A prior to yours A1, not marked). :-)
I guess all pennants must have these odd, damped oscillation style declining retracements. When I realised the two bounces were so regular (in proportion) I thought 'wow, this could be a way to predict the turning points further ahead'. And the shrinking moves seem to gives a rare opportunity to enter a trade with a pretty tight stop, without having to move down to shorter term charts.
RA recommends entering with a multiple of 4 lots, taking profits on 2 at P and 1 at D. I think like that taking partial advantage or a 15 RRR is possible. Problem can be the minimum lot size. (I still need training wheels :p )