ENTER THE DRAGON

“Oh look! … say hello to GBPJPY, the “Dragon Trade”!”

I / we need proper IVIX [intraday volatility] in market(s) I / we trade … not the kind

that is too low to matter most of the time, like IN EURGBP OR straight up USDJPY

trading, nor do we want the bat shit crazy “Stock Bellies” where there is no limit

to risk on a trade … the former bores you to death, the latter kills you instantly

… instead, in the FX universe we have got to get a handle on FX pairs that 1) have

LOWEST BID/OFFER SPREAD POSSIBLE, and 2) have better than average VIX 20

Day Range MA’s, with excellent IVIX through at least 2 of the  3 world sessions of

trading.

Quite frankly, we need something better than EURJPY, cuz too often EURJPY

disappoints with lackluster ranges … and increasingly, we are running into days

where even Cable [GBPUSD] is a basket of shit … today being a perfect example,

where halfway through the European session, the range is a paltry 30 PIPS …

granted, on Thursday we have a BOE interest rate meeting, and that has got

people headed for the sidelines until that’s over & done with … but still, at that

level of trading, there’s no way the trading algorithm can generate extremely

profitable trading signals without tons of “false positives”, simply cuz algorithm

parameters are literally laying on top of each other, and all it takes is a few PIPS

and it can send buys or sells in error.

Ok, since I’m back in Cable, what are the alternatives here? … looking at ALL OF

THE CABLE CROSSES AMONG THE MAJORS, we get the following:

It literally costs almost nothing … maybe 0.1 or 0.2 PIPS tops, to trade GBPJPY

over GBPUSD … and for that minuscule difference in the spread, we get

approximately 50 PIPS MOAR! In terms of IVIX … looking at the other Cable

crosses, they are more costly while not having that much more in terms of what

they deliver to IVIX … is it worth it to pay a spread of 4.5 PIPS to trade GBPAUD

and get 27 more PIPS, but pay 400% more for trading costs? … no, IMHO it

doesn’t make any sense … clearly, GBPJPY is the clear winner here.

And while the dollar pair of Cable may be called “The Widow Maker”, GBPJPY is

known as the “Dragon Trade”, or sometimes the “Tiger Trade” … it gets that

moniker for a reason … cuz like the others, do “stupid shit”, and they carry you

out! … but, as long as Turnkey can keep the spread fractionally above Cable,

there is no question you get much more IVIX for almost no corresponding cost

to trade … and if you haven’t watched or followed it yet, yes Skippy it moves!

… bottom line is, time to trade GBPJPY for the PAMM / MAM and get more IVIX,

while at the same time staying in the Cable space.

Directly below, the monthly candlestick chart of GBPJPY, going back 26 years

… the big drop circa 1998 is the LTCM crisis, the big drop circa 2008 is the great

financial crisis, and the 2016 drop was USDJPY skyrocketing on the reflation

trade with Trump’s election as president … this so called “debacle” seen in

March 2020 in FX, isn’t even a "blimp” on the monthly charts … as I say, “if you

think this thing can’t or won’t move, guess again Skippy”!

click on chart to enlarge

And while this puppy can put in horrendous “chop” at times, it also can and does

have some of the purest runs a market will ever see … especially when Cable

goes one direction, and Yen goes the other direction … I don’t have any problem

with someone trading GBPJPY from either the long or short side, but I would

caution to predominantly stick to one side the vast majority of the time … if you

go back & forth, there will be a day you get crushed in the chop, and it will be

brutal for your account … the “Dragon”, like EURJPY and all other non dollar

crosses, were not around to trade pre-internet electronic trading, simply cuz the

banks either didn’t want to, or couldn’t deal with daily interest “vig” payable daily

on long & short positions carried overnight … that’s why futures are all dollar

dominated, cuz the interest “vig” is reflected in the price and carried to

expiration … and just for the record, in 2006 I was trading this animal at

Saxo Bank with a 6 ½ PIP spread, the best available at that time … now the spread

is around 1 PIP, with about HALF the VIX from back then … today, it’s very much

a “MOMO” trade, and a favorite of traders in the Pacific Rim & Eastern Europe.

What should be of particular interest to traders with this pair, is the Yen’s affinity

to rally “bigly & yuge” on “risk off” [USDJPY goes LOWER], meaning the SP500

futures or CFD goes South … conversely, when the markets are in “risk on”

mode, Yen goes LOWER [USDJPY GOES HIGHER], and SP500 FUTURES OR

CFD’S GO HIGHER AS WELL … now, this doesn’t mean this is the only thing that

moves USDJPY, but it’s “Hoover Dam” close, cuz economic stats out of Japan are

worthless … so, if you trade GBPJPY, you absolutely must keep one eye on the

level of the SP500, as a proxy for risk.

Moves lower now in SP500, as well as Cable & GBPJPY, after Florida reports big

increases in the CHICOM WUHAN KUNG FU FLU cases … and “whoosh” there it

goes”!

I simply must say, extremely terrible bottoming action in both Cable & GBPJPY,

after that Florida report … this type of “distribution” bottom is NOT what you

want to see, with multiple tests of the low and some pretty wicked M1’s thrown

into the mix for good measure to screw the specs … especially going into the

European close … by contrast, a much better bottom in AUDJPY … the down

red M1’s simply wicked action, and if you’re hitting the sell button after it turns

red, you ain’t gonna like what happens next with the fill … I keep telling people

this, but they don’t listen and instead get greedy … you sell on the spike “UP”

and you don't worry what happens next … book the profit, move on to the next

trade, and if it so happens it goes higher, so what? … you wanna be a trader and

make bucks, or do you wanna be an analyst and be poor?

One algorithm buy signal today in GBPJPY … TURNKEY PAMM / MAM UP

SLIGHTLY.

I turned my attention to Cable/Yen about NYSE open time … from there, the

market almost had a couple of other buy signals “IF” the market had turned

around to the upside … it didn’t, so price “momo” stayed on the downside

… after the Florida report, the “Spoos” went “Thelma & Louise” & dropping

Cable & Cable/Yen … that subsequent bottom never showed any “bounce” that

lasted for more than 1 or 2 M1’s before getting “monkey hammered” again

… that short covering, simply not enough to sustain anything on the upside for

a buy signal, and here an hour or so later, price for GBPJPY is where it was right

after the initial bottom … a slightly higher bounce in Cable, but again, action at

the low very wicked, with any and all bounces quickly “smacked” lower again

within seconds … given slippage with these scumbag LP’s, I don’t think the fills

would have been good at all.

There is always the argument between market adherents, of which is better

… IMHO, that wholly depends on what it is you’re attempting to do … as a

professional trader, I don’t care what it does, does it trade well or not? … and if

not, it’s adios time … the “Dragon” trade is pure “trader” action, and if the spread

is excellent, the RT commissions meaningless, and the slippage not too bad

[knock on wood], then it’s a good market to trade … would I “position” it? … hell

no I wouldn’t, unless you like surprises that can run 100 - 200+ PIPS against you

… it’s a traders market … as far as I’m concerned, it might as well be “widgets”.

Tonight sees me turn my attention to Cable/Yen, and it actually does have a

pretty good range in most Asian sessions … once we get to Europe, though, it

means we’re one day from an interest rate meeting, so I would expect things to

get rather slow until Thursday morning at 7 AM EST, when all hell will likely break

loose, for another “rob ‘em blind” bank “slippagefest”, as the U.K. tells us how

much QE they’re gonna do … it’s always entertaining, isn't it?

Now into the New York afternoon, where we start the 8 hour period each day,

between Noon EST - 8 PM EST, where a lot can go horribly wrong if you trade FX

… and it didn’t take them too long to squeeze the shit out of shorts, as about 19

minutes into the afternoon, here comes the panic short covering attack, led by

who else?… do yourself a favor and leave this 8 hour period alone … outta here

… until tomorrow mi amigos … Onward & Upward!! 

Have a great day everybody!

-vegas