0.30 gmt
I’ve had not such a great week of trading so far. Although the week will show a decent profit, that excludes the open USDJPY long trade which is about -110 pips underwater at the moment, having been as much as -140 pips below entry. Monitoring this trade has been pretty stressful, but fortunately I think I will be okay with this eventually.
This happened when I was having internet connection problems 2 days ago and just at that time the yen pairs fell vertically by about 100 pips, well past my mental stop loss levels. When I finally got back online, I had a decision to make – take the loss, ride it out, or hedge it. I initially hedged it, and it worked out okay for the UJ hedge but made a loss on the EJ hedge. EURJPY being more volatile, and with the EURUSD in a downswing, I decided to get out of that trade for a fairly significant loss. A new EJ short trade with a poor entry also ended in a big loss. Total loss on the EURJPY trades this week is -156 pips.
The character of the Yen market has changed now. The one-way trade is over, and we can expect more normal 2-way action.
My thinking with the USDJPY is simple. Is it going to go back over 95 in the next 4 weeks? Yes, for sure, as sure as one can be in the forex market. How much lower will it go before it turns up? That, I cannot be sure. Hence my idea is to hedge the move down. There was a run of stops below 92.90 in thin late NY trading, (typical price action for that time period – its very unreliable to take any signals from that time period) followed by the rise back up through 93 in Asian trading. I am planning to see the action for the rest of the day, and if it threatens to the downside again I will enter a hedge.
This is unorthodox trading, and I am deviating from my system rules here. I have forced to deviate, due to the vertical fall when I could not monitor or act in the market. I have been caught in such no-win situations before and the experience has been painful, some of the most painful lessons I have learnt. This time, although it is bad, I think I will escape relatively safely. In the past, I would immediately hedge, put in more trades in the opposite direction and generally make a mess of things by over-trading. This time I have tried to refrain from over-trading and will just wait and ride it out, or hedge if there is a clear break to the downside. The system signals are short EJ, short UJ and short EU. The EU is close to becoming a buy and the UJ is also close to a buy, barring a sudden drop. My plan is to keep trading to a minimum until I can get back in sync with my system trades.
TGIF!
The Zen of FX Trading 