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Getting long the Japanese Yen

Last week we saw three strong Futures setups for getting long: Gold, the 30 Year Bond, and the Japanese Yen.

I like to take the opportunity to talk about the Yen especially because while it may be the laggard of the three, it’s easier to talk about Gold and Bonds. So I like to talk about the Yen because not as many traders do.

So here’s the backstory on getting long the Japanese Yen…

STEP ONE: The Yen Double Bottom

If you look at the charts, it was developing a double bottom right along the daily timeframe with a nice yellow wave (from one of my favorite indicators).

What’s a yellow wave indicate, Gang?

There’s more of a sideways market, and that double bottom is looking like an oversold zone.

But that’s not the only thing that helped us decide to go long…. I’ve talked about the VScore before. And in this particular case, we had a negative two reading of the VScore. However, remember the VScore isn’t a price based indicator. It looks at volume (or participation primarily, then price). Which naturally makes this a very different kind of indicator.

Why?

Because it shows you what’s happening below the surface (shoutout to my Submarket Sonar class, which discusses this in detail).

So we don’t want to just look at highs and lows, but we want to look at the participation that occurred there. And this particular participation told us that there was something really special about this double bottom. Then the volume confirmed those levels.

That’s why we liked this so much as an oversold level, Gang.

STEP TWO: The Yen V. The Dollar

So then how to trade it?

Well this isn’t an invalid trade, and it can be done with Yen calls.

However, this is a stand alone. Don’t get this confused please.

This isn’t a hedge on any kind of pullback in the broader markets. I don’t believe the Yen needs a pullback in the broader markets to bounce. My analysis indicated it could bounce all by itself. However, if a pullback happens… that magnifices this setup. With a pullback, it’ll be stronger. Without a pullback, it’ll still work, Gang.

Now as a side note, this is the Yen versus the U.S. Dollar. This isn’t actually the best combination, however, this is what we’re going with.

Why?

Because it’s the one we have access to with the most liquidity in the Futures and ETF space. This is the main reason why I said earlier that Gold and the 30 Year Bond were much stronger.

STEP THREE: FXY and Japanese Yen Futures

But back to my main point about getting long the Yen…

If you take advantage of moves lower, bearish momentum to the area low (or Darvis low), you could scoop the calls up in the FXY or the Japanese Yen Futures at a lower cost.

Then that way you wouldn’t need much more than about a 50% of this move bounce. And you can take advantage of a nice little profit as the Yen gains ground against the U.S. Dollar.

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