I’d like to alert you to a very exciting trade setup I’m seeing. One that could deliver 1,000 pips — or more — over the next several weeks in my very humble trader’s opinion.
These type of opportunities don’t come along very often. They can take a long time to set up ‘just right’.
But I’ve been around long enough to make over 120,000 trades over a successful 23 year Wall Street career involving 1,200 trading accounts. I know a good trade — one with an excellent risk-to-reward ratio and an ideal set-up — when I see one.
And that’s what I feel we’re looking at right now in USD JPY.
This is NOT for everyone
This isn’t going to be some magic pill to cure all of your trading ills. It is designed to give you an insight into the thinking of a Wall Street trader.
If you are into “system-jumping” and moaning about trades on internet forums, then you should close this page right now. This isn’t for you.
If you are one of those people who have ONLY ever lost money in the markets and call everything you see a “scam” – then this isn’t for you.
Also, I’m NOT going to be right all the time. There is risk in any given trade or investment. Don’t be foolish – nothing is ever certain in this game.
You still with me? Good.
That means you are one of the few who are actually willing to make this trading game work for you.
And for that reason you are going to understand the words on this page better than anyone.
So whatever you do, make sure you read every single line :-).
To see why I’m so excited about a potential 1,000 pip move, let’s start with the monthly chart:
On the chart, you can see that beginning in late 2007, USD JPY carved out a very deep V-bottom where the market plummeted from the 122.50 level to 75 from 2007 to 2012. Then it bounced all the way back over the next 3 or 4 years to create the other side of the V-bottom.
This matters, because right now I feel we’re at a key inflection point where the market is trading at or near the same level it was all the way back in 2008.
Of course, this is magnified on a very long term chart such as this monthly chart.
However, this same monthly chart means that any move from these levels could be very significant. In fact, I’ve seen similar setups just like this one when working as a trader for Merrill Lynch in the 80s.
So what’s happening now?
We’ve consolidated at or near the 125 level for the last several months, which is exactly where this market cratered from in 2008.
Take a look at the gap on this chart at 112.50 which is about 1,000 pips lower from where we are at the moment. I think there’s great potential for that gap to be filled and I’ll explain why in just a moment.
In the meantime, do you see how this chart has gone straight up from 75 to about 125 on a monthly basis? Even if it were to drive even higher in the future, I believe USD/JPY definitely needs to consolidate at these levels and “take a rest”.
However, I don’t feel we’re going to see those higher prices.
In fact, I think this market is getting ready to turn down and consolidate at a lower level.
Here’s Why I Think USD JPY Could Drop Significantly
Now let’s drill down and examine the weekly USD JPY chart.
If we look closely we can see a double top that’s formed at or near the 125 level. Plus there’s another pattern overlaid here called a head and shoulder top. You can see the left shoulder, and the head (also a double top) and right shoulder in progress right now.
The neckline is where we connect all the recent lows at or about the 118 level which represents a pivotal level in this pair.
That means this head and shoulders top won’t be confirmed until we penetrate the neck line at or near 118. But I’m seeing enough significant signs here that this could represent an immediate trading opportunity for a 10:1 risk:reward trade.
That means for every $1,000 we put up…
…we could potentially make $10,000 or more if this market drops and fills the gap at the 112 level.
The question is: where to get in?
Looking at this week’s activity in particular, you’ll see that we had what I call a “key reversal”. That’s where the market makes a new high and then closes at the low of the week.
See that little red bar at the end of the chart? That’s got me very interested.
You see, my long-time trading subscribers know that I look at how a market closes relative to its high and low. And in this case we can see the sellers won this past week.
Add this to the double top I’ve already highlighted, and USD JPY should be facing significant resistance to any further upside push. Therefore I strongly believe we’ll see a bearish follow-through.
This would allow us to put on a trade that could yield substantial profits.
Especially if this pair does in fact fall all the way down to the 112 area (or even lower)!
How & When To Enter This Trade
Now let’s drill down one more time to see how things look at the daily level in USD JPY-land.
Remember that at both the monthly and weekly levels we identified a double top.
And you can see that the weekly double top is even more prominent on this daily chart. We can see the twin peaks in a wide trading range where the market was emphatically knocked down at the 125 area. (This is after it’s rallied all the way from the 75 level in the last couple of years.)
The double top formed back in August.
And when it came off the second peak it cratered from 125 to 116, where it’s been consolidating for a few weeks. It’s recently risen again…
…only to make a key reversal at the 123.5 level as I’ve shown you.
Since then, it’s drifted lower and has been unable to sustain the upward momentum it had earlier.
So if we start trading back into the 120 range we could be looking at much lower prices to come.
Especially if the price violates the 118 level which is the neckline for the head and shoulders pattern I highlighted on the weekly chart.
Right now I think we have the potential for an immediate move from 122 to at least 120 and then the 118 level. I feel this represents a substantial risk:reward opportunity. One where we could enter the trade right now and make a thousand pips or more on USD JPY.
Yes, 1,000 pips!
The original analysis in this article still stands. In fact, it is more valid than ever.
USDJPY has already moved 500 pips or so down, and it looks poised to do it again in the near future. Check out the chart below:
As you can tell my original prediction of reaching the neckline came true.
It is likely to see price bounce around there in the next few weeks before continuing its plunge.
BEFORE YOU ENTER THIS TRADE
I need another level of confirmation before I will ever enter this trade again.