WTF happened on JPY? – EXPLAINED

One of the most important things about the JPY currency to remember is that it is a safe haven currency. This means then whenever there is some uncertainty like war, natural crisis, disasters etc…then people shift their funds to safe assets (JPY, CHF, GOLD,…). They want their money to be safe.

What happens to a currency when everybody gets crazy buying it? It strengthens. Rapidly. Then as the uncertainty and panic start to fade, also the prices of safe haven assets start getting back to normal.

Have a look at the picture below. It is the USD/JPY Daily chart. I marked two places. They look very similar, right? What you see is the JPY strengthening rapidly (USD/JPY goes down= JPY is getting stronger) and then getting back to normal. This is the big guys pumping their money in and out of JPY currency as a reaction to uncertainty.

USD/JPY rejection – EXPLAINED

Lets now talk about the smaller picture on USD/JPY and have a look at what exactly happened on Monday and Tuesday.

Monday opened with a 120 pip gap and then there was a crazy sell-off. People were buying JPY massively. The price moved more than 400 pips downwards.

Then there was a rotation (this is important – I will talk about it later) and on Tuesday the USD/JPY completely reversed. It closed the gap and moved over 400 pips upwards! This completely negated the selling activity!

USD/JPY gap

One more thing worth pointing out is the nice reaction to the heavy Volume Cluster which got formed above the gap (marked in red).

You can read more about this trading strategy for example in my yesterday’s post here:

Trading Market-Open Gaps

Below is the USD/JPY; 30 Minute chart:

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Strong rejection of lower prices

Overall the price on USD/JPY went aggressively downwards, then turned and the next day it completely negated the whole sell-off. This is what I call a Strong rejection of lower prices.

What I am interested in in such strong rejections is whether there was some significant place where heavy volumes got traded. I use my Flexible Volume Profile on the rejection and this immediately shows me if there is such a place or if there isn’t.

In this case it is crystal-clear. HUGE volumes got traded around the 102.28 area. So what happened here? First, sellers were pushing the price downwards (400 pip move). Then everything calmed down and big guys started quitting short positions and entering longs. They did this in the rotation.

*BTW to enter a long you need somebody who sells it to you. Who was selling? All those guys who thought that this downward movement will continue. Those guys were adding to their shorts.

So, in the rotation buyers entered longs and their next move was aggressive buying. This aggressive buying (buying with market orders) caused a new uptrend.

Volume Cluster around 102.28

This heavy Volume Cluster you see on the picture above is currently a strong support. Why? Because buyers were entering a lot of their buying positions there. When the price makes it back to this level again it is pretty likely that those buyers will become active and that there will be another buying reaction. This should help to move the price upwards from this area again.

I hope you guys liked this analysis. Let me know what you think in the comments section below!

Happy trading!

-Dale

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EXPLAINED: Gap Trading Setup

In a Weekly Ideas video, which I posted here on Monday, I was talking about gaps that got created on the market open on Monday.

In this post, I would like to follow up on this video and talk more about the gaps and most importantly about one cool trading setup!

Unlike for some other trading instruments (for example stocks) gaps are pretty rare on forex. Forex runs 24/5 so, the only time they can occur is when the market opens on Monday.

Gaps Tend to Get Filled

On forex, gaps tend to get filled. If there is a small gap and no major news that would have caused it, then the gap gets usually filled pretty soon (in a matter of hours).

If it is news-related and the gap is bigger, then it can stay not filled longer. Usually, max a few days. Then in most cases, the gap gets filled.

Gap Trading Setup – Explained

There is a nice trading setup you can trade when there is an opening gap.

If there are heavy volumes created before the gap, then the heavy volume area will work as a strong Support/Resistance.

What you want to see is this:

1. Opening gap

2. Heavy volumes before the gap

3. Price fills the gap and then hits the heavy volume area – which is the Support/Resistance. You enter your trade from there

Examples

In the Weekly Trading ideas video and also in my member’s area (members of Dale’s Trading course), I published some trading levels based on the opening gap which occurred on JPY forex pairs.

Let’s now have a look at few examples I published there and let’s see how price already reacted to some of them.

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USD/JPY Gap Example

Let’s start with USD/JPY.

There was an opening gap and it got fully filled in today’s asian session. There was a nice Volume cluster created before the gap on Friday (marked in blue rectangle).

So, gap got closed, price hit heavy volumes, filled my short pending order and went quickly downwards. A perfect trade!

The chart below is USD/JPY; 30 Minute Time frame.

CHF/JPY Gap Example

Another trade based on this setup was on CHF/JPY.

The scenario was the same as in the previous case. There was an opening gap and heavy volumes got created before it.

Those volumes were a strong Resistance. The gap completely closed on Monday and then the price reacted to the heavy volumes.

Another nice profit! BTW I published this trading level in the Weekly trading ideas video in advance on Monday. You can watch the video here:

Trading the Opening Gap on JPY Forex Pairs – Weekly Trading Ideas

The chart below is CHF/JPY; 30 Minute Time frame.

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CAD/JPY Gap Example

Now, there are still some JPY pairs, that haven’t closed the gap yet! Let’s first have a look at the CAD/JPY.

This pair closed the gap only partly. The way I look at it, is that the gap still is not properly closed and therefore I consider it a standard gap, which will need to get closed eventually.

In the picture I divided the gap into two parts. The first – green part already got filled. The red part is still not filled.

The resistance based on the heavy volumes before the gap is a little bit above the gap.

What I expect is that the price will eventually fully close the gap (the red area) and then react to the resistance I marked in blue.

The chart below is CAD/JPY; 30 Minute Time frame.

AUD/JPY – What if the gap does not get filled?

The last example is on the AUD/JPY.

In here, the gap did not get filled at all. It has already been two and a half days and still nothing!

I still expect this gap to get closed soon. My guess is that it will be filled until this week ends.

If it does not get filled and if it stays this way, then the market could go into a downtrend.

This is actually another phenomenon I wanted to show you!

If there is a gap which is not filled, then it means that one side of the market (buyers or sellers) is clearly much stronger than the other and they will push the price one way only – away from the gap.

In other words – market participants don’t even have the strength to push the price towards the gap to close it.

This in many cases starts a strong trend.

AUD/JPY Example

If the gap in the picture below does not get closed within the next couple of days, then it is likely that it will not get closed at all and a strong downtrend will start.

The chart below is AUD/JPY; 30 Minute Time frame.

I hope you guys found this useful! Feel free to let me know what you think in the comments below!

 

Happy trading!

-Dale

JPY Strengthens and Creates a Swing Trading Opportunity

Today, I am going to do a swing trade analysis of CHF/JPY forex pair. I usually do swing trade analysis on a Daily time frame. This time frame helps me to see the big picture (which is needed for swing trading).

Trend Setup on CHF/JPY

The CHF/JPY was in a trend since the end of November 2019. Strong buyers were pushing the price upwards.

When I see a strong trend like this I use my Flexible Volume Profile tool and I look into the trend area.

What I want to see there, is a nicely visible Volume Cluster. In such a Volume Cluster, volumes are accumulated.

If there is an uptrend, then it means, that buyers were adding to their positions there (in this Volume Cluster).

When the price returns back to this Volume Cluster, then it usually works as a support/resistance.

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This is the case of the CHF/JPY.

Strong uptrend with nice Volume Cluster in the middle. When the price makes it back to this level again, then this Volume Cluster should work as a Support.

Why? Because the buyers who were pushing the price upwards and who were adding to their volumes there (in the Volume Cluster), will be defending their positions. So, when the price makes it back to this area, they will start aggressively buying and they will try to push the price upwards again.

You can see this on a picture below. The Support is marked around 111.70 area.

Resistance → Support Confirmation

So, now we have a Volume-based support. Is there anything else that would support this trading idea? You bet there is! My favorite confirmation Support becoming a Resistance (and vice versa) setup!

The price very nicely reacted to this level in the past. You can see it if you zoom out the chart a bit (we are still on the Daily chart):

This means, that the level was a strong Resistance. When the price went past the Resistance, it then turned into a Support.

The cool thing about this is that this Support is at our Volume-based level (around 111.70)!

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VWAP 1st Deviation

There is even more! One more confluence/confirmation I was able to find.

It is the Yearly VWAP. More precisely the 1st Deviation of the Yearly VWAP!

What’s that? It is the grey line (I highlighted it in yellow) which is slowly developing since the start of the year.

It is moving and developing, but right now, it is very close to our Volume-based Support zone.

1st Deviation of VWAP often works as a Support/Resistance itself alone. But when it meets with Volume-based level, then it is even nicer confirmation of the strength of the level.

Want to learn more about the VWAP? Then watch this short video:

VWAP introduction video

One Risky Thing About This

There is one thing which is a bit risky with this Support zone (I said it many times, there is no best, zero-risk trade).

The thing is how strongly the price turned a few days back, and also how strongly and aggressively it now moves downwards.

This is a sign of strong sellers. After those 2 months of uptrend, it seems that sellers took over (at least for now).

The question is: Who will be stronger when the price reaches the Support zone? The sellers who are currently pushing the price downwards? Or the buyers from the uptrend who will be defending their buying positions?

In my opinion, it will be the buyers who will be stronger in the end. The level seems pretty strong and we have two nice confluences to support it.

Why the JPY Strengthens? – Fundamentals

If you are curious, why the JPY is getting stronger, then it is because an uncertainty, or threat. JPY almost always reacts to uncertainty or threat like this.

Currently, the uncertainty/threat seems to be the Coronavirus, and the rockets hitting US embassy in Baghdad.

Strengthening of JPY is the initial reaction, but when this passes, it can as easily weaken back again.

Happy trading!

-Dale

How to Cover Losses With Reversal Trades

This is a short excerpt from today’s Daily levels commentary video (8.1.2020) – which I publish for members of my Trading Courses every day.

I talk about two important things there.

First, is Reversal trades and the second one is JPY usual reaction to news like missile attacks, wars, natural disasters, etc…

Check it out here:

In this video, I did not really explain what the Reversal trade is and how to trade it, but there is another video I made some time ago. This whole video is dedicated to Reversal trades and you can watch it here:

If you would like to learn how to trade with Volume Profile and join one of my educational trading courses, you can do it here:

Dale’s Volume Profile Courses

 

Happy trading,

-Dale

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