With the Japanese Yen showing signs of strength, we explore why it is important to understand why you are getting into a market before applying a strategy.
We also break down #EURJPY and explain what could happen next with the #forex pair.
Hi, and welcome to this Blueberry Markets video update with me, John Kibbler, Head Currency Analyst.
In this video, I’m going to be analysing EUR/JPY as the price may reverse.
We spoke about the JP Yen, and we covered a potential reversal on NZD/JPY because of the price consolidating. When price consolidates, you either want to trade from the top of the range or from the bottom of the range, giving you a bias in the market.
I always talk about biases because it’s essential when it comes to trading that you don’t just jump straight into trading the markets. There’s a formula from what I’ve seen trading the markets.
One thing I want to discuss before jumping to analysing this is my method for getting into any positions.
You want a strategy, and this is the primary strategy; this is what’s going to give you a probability edge in the market.
Let’s say: the strategy you’re working with has a 60 to 70% win ratio. That means out of 100 trades, 60-70 will work, 40-30 will lose. If you have a risk-reward greater than one to one, that would be a very profitable strategy.
Now, what we see in many traders is that they simply focus too much on this and not necessarily understand why that strategy works in the first place.
Trend based system
My system is a trend based system. I do have a reversal system too, but it’s not as used as a trend-based system. This system is a high probability opportunity.
I like to work backwards, and I want to work with higher timeframes. For me, the four-hour timeframe is an excellent timeframe – a suitable medium that I like to work with involving my analysis.
To start this all off, I want to identify a trend. Why do trends form? The answer is quite simple: one currency is strong, one currency is weak. That’s why we get these trends.
The JP Yen has been weak for a while now. We even discussed this yesterday using the strength meter. That allows us to look for opportunities. Around the 11th of February, JP Yen was the one that was moving to the downside. You can see that this is the 11th of February, around this area here. Look at what happened after that, the JP Yen weakened significantly. The market has rallied nearly 200 pips from that point.
So, if the Euro was getting stronger at that point, the JP Yen was getting weaker. This would have been a great market to trade to the upside.
What we see now is that the JP Yen weakness is starting to dissipate. We’re starting to see a bit of JP Yen strength, and that’s what makes me think that the trend may change for these JP Yen pairs.
Euro is not looking too great either, it’s looking like flat line, to be honest. And against the US Dollar, it’s suffering quite a bit. Euro is another area where we could look to take advantage of – a strong currency against a weak currency. JP Yen as the potential strong currency, and the Euro as the potential weak currency. So, we could see the EUR/JPY move down.
The next thing I want to do is to identify the trend. I need to identify the trend because I have a trend-based strategy. What is the market doing? Is the market making lower lows and lower highs? Is it making higher highs and higher lows?
Now, in this instance, the market is still technically making higher highs and higher lows. However, the price had quite a strong retracement, and it is now consolidating in this area.
It’s very similar to NZD/JPY. We talked about the fact that we want to see the price make lower lows first. That’s precisely what I would like to see here on EUR/JPY as well.
I’d like to see the price take out these lows because strong buyers have been sitting here, and every time the price came to this level; the market rallied away from that point.
I don’t want that to happen. I want the price to break through this level. So, I want to see sellers win from this consolidation zone and then trade the pull back and get involved.
Again, it comes down to the four-hour trend and the four-hour support and resistance levels.
I like to try and establish this before I even get to my strategy because it allows my strategy to be more efficient. I don’t want to trade a trending strategy through this area because that’s a range.
If I try and trade my trade-based strategy through this area, you’re not going to have a great time. You’re going to fail, and you’re going to lose a lot of money or lose a lot of percentage gain through these range periods. It would help if you wait for that clear opportunity to get involved.
So, with EUR/JPY, I like that the daily timeframe is struggling at the moment. I like the fact that the market is trying to wick to the upside. The market can’t break through.
Now, what I need to see to be a short seller is a break below these lows. If we get a break below these lows, I’d like the opportunity of getting short around 128.80 and trade down to this area here. The reason why I have a trend line in here is that it coincides with a couple of different areas.
First of all, we have this zone where the market has found resistance, resistance, and support. This is an area where I would expect the market to test if we were to break lower.
Another area as well, we can see that we have a bounce here, here, and here – three bounces on the lows. If that extends higher, it comes in around this 128.25 level.
So, I’m looking for prices to come back down into this point if the trend wants to continue daily. I expect that if the price breaks out of here, we could probably see some lower prices, but that depends on how the strength and weakness of the currency go at that point.
But for me, seeing these strong bearish candlesticks coming in at this key level is something of interest. I think we could see some further downside.
I hope you enjoyed this video update, and I’ll speak to you in the next one.
If you’d like to try trading the EUR/JPY currency pair, you can start with at least $100 when you create a live account through Blueberry Markets. When you’re in live trading, our customer support team will be there to support you every step of the way.