For some time now it has been
almost accepted wisdom in the Forex market that the USDJPY pair is due for
another rise, based on continuing weakening of the Yen as a result of
established Japanese monetary policy, and the continued tapering of QE in the United States .
The pair has been undergoing
a period of consolidation on the back of low volatility in the market in
general, and participants have been waiting for the rate to break to the
upside.
Now all bets are off.
Annualised GDP growth in Japan ,
according to government figures last week, has achieved a rate of 5.9%. This is
a stellar performance and must constitute a strong incentive for the central
bank and the government to make at least some adjustments to the policy of
accommodation they have been following for more than a year. Very early on next
Wednesday morning (GMT time) the BoJ will announce its latest interest rate
decision. While no concrete change to the rate is expected, there could be
comments made that would have the effect of pushing USDJPY below the strong
support that exists in the 101.318 area.
There is a counterargument to the above. Consumer anticipation of a sales tax rise which
took place on April 1st, of 3%, resulted in a rush of purchases of
durable goods in Q1 of 2014. This would have had a one-off effect on the
figures published. Perhaps the Central bank will wait for this to be flushed
out of the system before making concrete moves or even comments.
On a technical basis, price
has just pierced the 200 day Simple Moving Average (see chart above). If it now
breaks below the horizontal support as well, and stays there, it could be a
case of “watch out below”.
The OmiCronFX attitude to risk
In 1987 Larry Williams won
the World Cup Premiership of Futures Trading. According to his entry on
Wikipedia, he “turned €10,000 of real money into over €1,100,000”, for a profit
on equity employed of 10,900%, over a 12-month period.
One wonders if such a story
is a benefit or a curse to aspiring traders. The record clearly shows us that
well over 90% of new traders lose money, and a great number of those get
totally wiped out.
Here at OmiCronFX we do not
aim for such performances.
While we agree with “Black
Swan” author, Nicholas Taleb, when he says that the Normal Distribution curve,
also known and the “Bell Curve” and so beloved of statisticians, does not
reflect real life, nevertheless the terminology used by stats practitioners can
be of assistance in describing what goes on.
Using straightforward, tried
and tested risk reduction techniques has the effect of reducing variance in the
distribution of results. This would tend to narrow the bell curve, meaning an
absence of exhilarating extreme wins, but also none of the debilitating losses
that precede and / or follow them.
And once that is made to
happen a lot more can be done. The curve can be skewed, so that losses in
general are diminished while wins are enhanced. In addition to a policy of
robust risk management, this can be achieved by the strange notion of indulging
in work: the work of research on the fundamentals, gaining familiarity with
technical indicators, especially support & resistance and moving averages,
extensive study of price action patterns on historical data and in getting to
know the characteristics of the different currency pairs - becoming familiar
with their personalities, so to speak. It also helps if you can have the
assistance of algorithmic “power tools” that allow price to be monitored and
trade entry signals to be recognised and acted upon, and the all-important
profit retention and loss reduction actions applied automatically.
We do have an inspirational
figure, but it is not the winner of the 1987 World Cup Premiership of Futures
Trading. It is Ed Thorpe, founder and operator of Princeton Newport Partners.
In his book, “Fortune’s Formula”, William Poundstone tells in detail the story
of how Thorpe’s fund, through the agency of ultra-careful selection and
management of investments combined with early algorithmic techniques, was able
to achieve annualised returns of over 15%
after fees for an extended period of years, using a market neutral strategy.
This meant it was able to be profitable even in those years when the economy
was in decline and / or the stock market was crashing.
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