JPY225 + usdjpy

Just thought I would write a little note about one of the aspects we talked about in the Members area this week - correlation.

We all here how difficult it is for new traders to let profits run and cut losses. Unfortunately its normally the other way round. I know it sort of sounds obvious but it does have a lot to do with the way we are hard wired from the beginning, however all it requires is acknowledgement and practice. Once we are in a trade there are ways of keeping us in control - one of those is monitoring market conditions. Ok so far just dribble.

One of these condition is the correlation between variables. One of the most followed and positive cross correlations is between the Japanese equity market and the USD/JPY pair.

JP225 Vs USD/JPY

JP225 Vs USD/JPY

When Japanese equity market is rising then normally the Yen is depreciating and visa versa as can be seen from the image above. But have a look how close the correlation has been since the Trump rally begun. Back to our our original point though of how can this help us stay in a trade longer.

Well if we know the correlation is strongly positive then why would you not let the JPY trade run when you have a equity markets supporting - our fear of markets abruptly reversing is diminished (never disappears of course)until otherwise noted. On top of this we have talk on a US rate hike becoming more certain, and Japanese govt still discussing stimulus programs etc. With all this in mind we should be comfortable with holding a position for longer and managing through a trailing stop. This week we had a Yen trade where we earned over 400 pips by piecing the puzzle together. Thats why we learn the whole process not just fundamentals or technicals. The more we add skill to the equation over luck the better.

Posted in USDJPY.

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