There are a couple of “safe haven” markets that investors turn to in times of increased uncertainty. The Japanese Yen is a favourite, and historically we have seen a rise in the Yen during riskier times.
When I turn to the charts to identify where I can capitalise on a potential move in the Yen market, I see a few options. Some are more familiar like USD/JPY or AUD/JPY. Others less so, such as CAD/JPY or SGD/JPY.
So how do I choose which of these markets would be better to trade? Do I go by which market is more familiar? And if I do, what happens if the market I know best isn’t showing potential trading signs? As a technical trader, I need to adopt a Zen-like discipline - I need to let the charts make that call for me.
How do I do that? Let’s start with the most important element, an optimal chart structure with a clear established trend across several timeframes. If we look at USD/JPY on the monthly chart we can see that the long-term down trend is now broken, the weekly chart is currently in an uptrend, and the daily chart has now moved into a downtrend. Clearly there is no agreement on the direction between these timeframes.
Now let’s take a look at SGD/JPY. The monthly chart still in a long-term downtrend, the weekly chart has started a new downtrend, and the daily chart is also in a new downtrend. Now I have a market with optimal chart structure and a confirmed trend across all the higher timeframes.
The next thing I need is a technical entry. I need to have a precise entry, a precise target, and - in case the market goes in the opposite direction - a precise stop loss. If we look closely at the daily chart, we can spot a nice level of support and resistance at around the 79.55 area, which has seen many touches in the past as well as in recent price action. The golden rule of support and resistance states that when support is broken and retested, it has a higher likelihood of becoming resistance. So I am going to utilise that in building my trading opportunity.
Next let’s look at the 4-hour chart. This mid timeframe chart is also in a downtrend, so we draw in the Fibonacci retracement study on the latest move. We can now spot that the 50% retracement is clustering nicely with the level of support and resistance noted above.
I have now identified a level in which I’d like to see my opportunity form. If the market pulls back into this level, I’ll be looking for signs that the pullback is over and the market is ready to continue its overall downtrend, such as a bearish rejection candle forming at or around this level.
With this approach, rather than opting for a market on the basis of known familiarity, I am basing my trading entries on a technical evaluation of what seems to be the best trending market. And that allows me to find the best Yen market for my own personal trading style.
By Tamar Mehr