USDJPY back to it's Mean and Market consolidation ahead

Hello readers,

Like October, November was a strong month for the S&P 500. In this article, we'll take a look at what December might bring and what it means for FX trading.

The Markets

To research the markets and save time, but still get a good overall picture, I use 2 charts. The S&P 500 and the USDJPY. It is impossible to extract all market information from this, but being aware of the latest market developments will go a long way.

S&P500 Weekly

There has been a downward trend for some time now, as can be seen in the weekly chart below. In the last 2 months, we saw a strong rebound from the last bottom. The MACD is still in negative territory but registered a higher bottom.

The index has now reached the descending trendline and will encounter resistance. According to the stochastics, the index is also overbought. It is quite possible that the pullback from the current highs is limited and the index makes an equal or higher bottom compared to 2 months ago. That seems to be the most possible scenario for now and it seems that there is no clear risk trend.

With a more detailed analysis based on the daily chart or shorter time frames, there can of course be many opportunities. Especially as there appears to be a status quo in the higher time frames in terms of the strength of the Bulls and Bears for the foreseeable future. Trends in shorter time frames are unaffected by the direction of the higher time frame for now.

The fact that the Index is above the Ichimoku Tenkan-Sen and Kijun-Sen may present opportunities to go long in the lower time frames. As long as the Stochastic remains above 80 and does not weaken, long positions can be a good choice. Once the stochastics reverse, it's time to get out of long positions and look at shorts.

USDJPY Weekly

This pair suffered a sharp decline in recent weeks. According to the Stochastic, it now appears to be in oversold territory. Strong support is also expected from the horizontal support line around 131.

Looking at the Ichimoku cloud, it is clear that this pair deviated strongly from the mean. This can also be seen by using the usual 100 and 200 Simple Moving Average (SMA) in the daily charts. However, the cloud does not indicate where prices may go, and usually, it is a sign of trend reversal when the price gets there. This pair is still a long way from that point.

 

USDJPY Daily

The Daily chart clearly shows that the downward trend has gained momentum. The pair is below the Ichimoku cloud and the MACD is in negative territory with lower tops. Stochastic is less relevant in this situation because it doesn't work well on strong trends. It will be continuously oversold until the downtrend slows down. In that sense, it can be useful and it will change along with the MACD in case of recovery.

In this chart, the 200 SMA has been added and is now around 134.50, see the white line near the current price. This pair's deviation during the highs above 150 is completely cushioned and this may provide opportunities to go long again on this pair. It appears that the downside is limited and a bottom is likely to be made between the 200 SMA and the Horizontal Support line. That is the most possible scenario.

The conclusion for trading FX is first of all that there is no clear risk trend for the time being. The USD is weaker than a few weeks ago and going short on the USD can present opportunities. The best opportunities will be in conjunction with a rising S&P 500 as long as the USDJPY remains in a downtrend.

Once the S&P 500 starts to weaken, it's best to track this pair carefully and look for long positions.

The pair will continue its downward trend only when Full Risk aversion sets in.

The strategy

Below you will find the trades that have been closed in the last month. Of all trades, only one was closed after a good trend development. That was the USDJPY long that closed on November 10. 4 trades reached the Stop Loss, this can be seen in the screenshot below where the SL column is colored red.

The other trades may have had opportunities, but the coding to close positions to avoid risk and high losses, added a few months ago, has done its job. This may not always have been the right decision, but testing has shown that it is generally better this way.

The month ended with a small loss of -0.89%, which is a small loss when you consider that you tried 11 opportunities in that period. For more information please visit this link

The risk-avoiding measures are working well. However, the point is to make a profit and not just close positions to avoid risk. Being patient can be difficult at times, but it's just as important. Let's see what the last month of this year will bring.

The pairs traded in the coming period

For the coming period, the same pairs as last month have been selected for trading, and the period has been extended by a month. Depending on the monthly analysis, the end dates can be extended. 

NZDJPY until March 1, 2023

GBPJPY until March 1, 2023

GBPUSD until March 1, 2023

NZDUSD until March 1, 2023

USDJPY until March 1, 2023

The profit generated in the past from these 5 currency pairs is 28% over 1 year, see the chart below.

Update on the 4 Hours strategy being tested

Last month I briefly explained an H4 strategy that also uses the daily time frame. The settings in combination with the Daily Timeframe ensure that the number of transactions becomes a lot lower compared to not using a higher timeframe. This also makes it take longer to get good test results. It is also less interesting because the profits will be lower.

This is the case with my strategy; it does not mean that other strategies will experience the same situation.

Fortunately, another promising H4 strategy that doesn't use higher timeframes will be tested soon. I was able to filter taking long and short positions by adding an additional indicator, which is a trend indicator without the need to optimize.

This strategy can generate enough trades in a few months to get a good impression. I expect to go Live with it sometime in Q1 of 2023 if all goes well.

This benefits my articles as we can dive more into the high volume of trades and the analytics that can be done with them. The plan is to write a separate article for the H4 chart, which will be in the middle of each month.

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I hope you liked this article; this is it for now. If you have any questions and I can answer them, I will do so in the next article. For more information about the development of FxTopSystem, you can visit my blog FxTopSystem.info by clicking here or just sending me a message. If you are interested in the performance then check here. I wish you happy trading in the coming period.