January 10th, 2010
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This is a simple lesson that all of us need to drive deep into our consciousness:
Beware of Unidentified Flying Objects in the Forex Market….a.k.a Spikes…
What causes spikes?
These are two of the common reasons; Central Bank and Exporter Currency Repatriation as well as International Corporate Mergers and Acquisitions. When these happen don’t get spooked out but don’t get pulled in like a moth to the flame.
The market will almost always fall back to its former price level once these one-off moves are over. How can you identify a spike? Spikes are associated with rapid price movements that have nothing to do with market fundamentals such as scheduled economic calendar events. When there is nothing on the calendar and price moves quickly this is a spike and it has to definitely be ignored. Go back to your trading plan because price will likely return as well. Spikes are one of the reasons pre-entry orders (buy and sell stops) can be dangerous and tripped for the wrong reasons.
(Copyright Jeff Langin 2007-2009)
January 10th, 2010
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Anyone trading the Forex is aware of Carry Trades and how the JPY crosses trend in one way and then reverse in the opposite direction all at the same time.
Why is this occurring?
There are specific ‘pip’ levels that are reached where day traders buying in these crosses take profits every day. We can see that by the ’saw tooth’ looking retracements on daily and hourly charts. However, that is not the only time when profits or taken.
There are the longer term players in the market – the positional traders who are in their trades for days to weeks and the long term traders who are in their trades for weeks to months. These longer term traders also take profits, not on a daily basis but rather on a bi-weekly or monthly basis.
We have to be careful with our trades and ensure that if we are trading on a daily basis our stops are not getting taken out prematurely or worse, that our trades are not being entered just before these longer term players decide to take profits. In many cases the total forward movement in the positional and long term trades has gone 500 to 1000 pips or more.
