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    SPOTTING REVERSAL CONDITIONS: CASE OF USDJPY

    By Mike Conlon | September 8, 2010


    by Abe Cofnas

    This morning’s Wall Street Journal reported increased potential for Bank of Japan intervention on the USDJPY.

     

    TOKYO—Japan’s finance minister made it clear Wednesday the government will intervene to tame the yen’s rises if deemed necessary, but investors brushed aside his strongest warning to date and pushed the yen to a 15-year high.

    The question for the trader on the spot market is to catch a bounce of the 15 year highs that the Yen has been scoring against the dollar.  Of course, you can just put on a position and go long and wait for a rise in the USDJPY pair. But that is not trading. I call that “floating” the spot.  Such a tactic is quite vulnerable to big swings. 

    I want to point out how technically; one can spot a reversal condition. Using two Bollinger Bands, the first being the standard (20, 2) set up.  The second is the more extreme (13, 2.618) set up.  Here is how to play the set up:  When the price goes outside the Bands, wait for it to come back and cross the inner band- That becomes the entry point.  It is a useful confirmation that an extreme is over.  Remember that is currencies, extreme price action is not unusual. The price is extreme for a lot of reasons.  The trader has to have a confirmation that the extreme is over. So the two Bollinger Bands, helps out!  (Click chart to enlarge)

     

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    Topics: What To Look At In The Market | No Comments »

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