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“I think I hear the fat lady singing!”

I’m not sure it gets any worse than what we saw today; “I mean, what’s it gonna take to move any of this stuff, WITHOUT THE “FLYING WEDGE OF DEATH” [FWD]”? Anything Cable related, shoved to the back-burner cuz of the political troubles Theresa May’s coalition government is having … none of the economic data matters unless it’s way off consensus; meanwhile, over in “Peter Pan” Kuroda’s side of the world, USDJPY trading like it’s a glacier, with some very small and insignificant ranges seen in a while. I simply got no words for pathetic that can outdo pathetic. Of course, when stocks open in the U.S., you have to watch the level of the SP500 , and whether it’s rapidly going up or “Thelma & Louise-ing”; that will some days affect USDJPY [like today] and give GBPJPY some real gyrations.

As I briefly stated yesterday, any time GBPJPY [or any FX pair, really] starts making new highs/lows for the day and can’t “push through” with any price muscle, you must be cognizant of the big, fat warning signal that’s being sent your way … and that warning signal is that the market has a high probability of fading that new high/low, and you can get some pretty wicked “kickbacks” right off the M1 at the high/low. And today, we got more than a few. [See approximately 15:00 server time for one the most severe.]

This was a “double data day”; both U.K. & U.S. inflation figures. Upshot was the U.K’s numbers a little “cooler” than consensus, and the U.S. numbers a little “hotter” than consensus. The first set were the U.K.’s, where that “cooler” print resulted in an immediate 50 PIP drop to new session lows; however, there was nothing behind it, and over the next 2 ½ hours GBPJPY moved forcefully back to the 50% retracement line for the day at 149.100 and then got rejected like a teenager asking a college girl for a date.

That set the tone for the U.S. numbers, all the while the SP500 melting like snow from its earlier highs; a very tight USDJPY range adding to the utter confusion, cuz with such tight range, a reversal or double reversal a definite possibility after U.S. numbers come out. Those “hotter” U.S. numbers eventually started to weigh on GBPJPY. My feeling all along was that the market needed to get under 148.650; this was yesterday’s 50% retracement level that got violated on the upside, and that below that level, the market had a half-way decent shot of going lower forcefully, maybe down to 148.000 – 148.200 area before consolidating. Up to this point, every sell signal was on a spike down, and none of them looked good or lasted very long. On a thrust down, I got short … market makes new low, but isn’t going anywhere … I’m seeing “red flags” everywhere, and when the market hit a new low, I liquidated either 0.001 or 0.002 off the low offer and was out. Ask yourself if I would have gotten that fill in GBPUSD? And then, it’s literally “to the moon Alice”.

A quick glance at the daily candlestick chart in GBPJPY, directly below, and it’s obvious volatility has taken a “hit” these last few days; as I said, Yen in a coma, and Cable like “deer in headlights”. Is it any wonder the cross has nowhere to go, and we end up with the “Flying Wedge of Death” [FWD] and relatively tight ranges.

Now, the GBPJPY cross, like most of its cousins either with GBP or other major dollar pairs, gives you absolutely zero time to think about anything; “you blink, you lose”, the bid/offer changes so quickly. So, when things slow down [like now] it’s likely to get very choppy and somewhat thin; as I have stated on numerous occasions, if you’re long liquidate on the spikes up, and if you’re short liquidate on the spikes down, AND THEN don’t care what happens next … simply reevaluate and move on. Point is, there is no time for thinking a position, you can only “react” if you want the best prices.

Pretty much all day, after the first data release at 4:30 EST, the 121 & 183 EMA’s were flat to slightly negatively sloping … yes, there was a slight bias to the downside, but every break was met with some wicked spikes up that I am sure caught many people on the wrong side looking for more. So far today, a very subpar range day, even with the 50 PIP drop. Almost Noon time in New York, and both the 121 & 183 EMA’s are “flat-lined” and the market is drifting aimlessly, well off the lows set earlier. Unless some political announcement out of the U.K. comes forward, I think Cable is done for the day … I don’t see what impetus there is for Cable strength, or for that matter enough volume to get it below 1.3060, where you know there’s a “shipload” of sell stops … USDJPY got some volume and expanded its range to about 60 PIPS, on early SP500 weakness that fizzled, but the pair is only about 10 PIPS off the low, so going into the afternoon if stocks start slipping, GBPJPY will come under pressure again. If not, it’s hard to see what’s going to move this stuff this afternoon, other than stops & some corporate flow … volumes and general interest seem to be waning now … what the hell does it look like in 4 hours? [So much for Cable drifting aimlessly, after it pops 80+ PIPS … [“hey, what do I know”?]

Since the start of electronic trading around the turn of the new century, the development of the MT4 trading platform, and high-speed internet, I’ve traded GBPJPY off and on over the years. I remember vividly, in 2006, a VP at Saxo Bank telling me that in my lifetime nobody would ever be able to beat their spread in GBPJPY, which at the time was 6 ½ PIPS; now we’re at Turnkey and it’s right around ½ PIP; ain’t competition wonderful? It’s always been a volatile cross, and what you always must remember when trading this puppy, is that you can’t allow the market to ever “get away from you”, no matter what is going through your head. “If it’s a loser and starts leaking water, PUKE IT, and start fresh again … don’t ever assume this pair will come back for you … sure, sometimes it does, but when it doesn’t it will cost you dearly and you’ll lose way more than you thought possible. They don’t call it “The Dragon Trade” for nothing. On the other hand, when it starts to run in your profit direction, let the pony run … don’t take yourself out of the trade until the trade says “take me out”; until then, ride it like you would a race horse”!

Looks like the Noon hour got somebody nervous, as everything simply “spiked” sharply higher … must be the coup in Zimbabwe, heh? Cable spiking 50+ PIPS … haven’t seen any news to account for it, not that we need any of course … may simply have been to many spec shorts in the trade. USDJPY barely moving; the FWD in full effect now 2 days in a row … they’re treacherous, and if you’re not careful, they can be account killers. People think I’m joking when I say this is the most dangerous formation you face in trading … just get caught by one some day and your opinion will change quickly.

Here in the early New York afternoon, a quick spike up, by about 30+ PIPS on “vapors”, highlights something I have been saying for years, and why I believe it is so important to keep your “buys” above the day’s 50% retracement line, and your “shorts” below the 50% retracement line, I don’t care how big or small the range is. When you try and pick a bottom, or sell a top, and you place your stop just below or above the old high/low, you automatically assume you know what your risk is; “I’m here to tell you it’s a lot higher cuz the stops often are “messy”, and you could easily go from risking 7 PIPS, to losing 40 PIPS in a heartbeat … wherever your stop is, it will be filled at the extreme”.

This is different than what I wrote in the manual, simply cuz the ranges I mention in the manual are larger, and the formations you look for have a high statistical probability of success when the proper size range is there … today, that’s not the case, as the day’s range was under 100 PIPS when it happened.

So, now that we have formally had a reversal, from open to low to now a new high, “where do you go now if you’re facing losses from the FWD”? And while I’m not thrilled making “chump change” from the day’s trading, 2 things of supreme importance you have to keep in mind; 1) 2 FWD’s in a row, and 2) no movements of note in either Europe or early U.S., instead coming late afternoon New York, and that brings up the “time effect” I talk about in the manual. So, just keeping things in perspective, cuz it’s easy to lose your donkey in “The Dragon Trade”, as the PIPS add up quickly if you’re on the wrong side.

And like typical FWD’s, once they [the scumbag LP’s] clear out the order books, there isn’t anything there to follow through, and after minutes waiting for some more appreciation in price [if long] or drop in price [if short], when it doesn’t come you’re looking at spec liquidation and the market goes the other way … sometimes smoothly and sometimes violently. The whole point of the algorithm is to avoid the FWD’s, and always keep losses small and manageable, while trying to capture moves once Europe opens and gets going. Its priority is Europe and the first half of U.S. trading, where the majority of moves are predominant, rather than Asia or late New York. Two days in a row it’s the moves in late New York that have stolen the show … it happens, but when it does, most often it’s a FWD, and not some “sea-change” in market momentum that carries through into future days of trading.

I’m not saying you can’t get “long” or “short” in afternoon New York trading; what I am saying is that you need to understand the ramifications of the position, and the consequences if you’re wrong going into the end of the day … in my book, it’s not worth the aggravation, and that’s why I rarely take positions in the New York afternoon.

And I will say this again cuz it’s so very important; “you always have to concentrate your efforts on “risk “, and leave the profits to themselves … you need to be situationally aware of where the stops are likely located, where the 50% range retracement line is and its importance, and how you can lessen your risk considerably by being on the “right side” of the market … of course, that changes, and you have to be flexible [hello 121 & 183 EMA’s!!] in your approach”.

It’s a “data dump” night in Japan tonight, with “Peter Pan” Kuroda set to speak as well; also tomorrow morning 4:30 EST sees U.K. employment report, so plenty of market moving information going into tomorrow’s trade. Is it too much to ask for no reversals, double reversals, or the FWD ?

I’m outta here … until tomorrow mi amigos. Onward & Upward!! PAMM spreadsheet directly below.

Have a great day everybody!

-vegas

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