Revealed: My Two Highest Conviction Trades Right Now
This week I want to show you what I think will be formidable trading opportunities in the very near future. I also want to unpack some of my thought processes about these trades and trading in general.
That means this is going to be a nuanced discussion, in no small part because the markets are so dynamic and fluid right now.
I think we can all agree the market throws a lot of patterns and trends at us. That means we have to sort out the worthwhile price action from the distractions.
So let’s start by looking at the USDJPY (the US dollar versus the Japanese yen):
For the last several years, you've heard me drone on about all the bear patterns in USDJPY.
And on the back of that bearish stance, I've made a fortune shorting this pair. The bearish patterns started all the way back in 2015 with the double top at the 126 price area.
That double top formed the head of a head and shoulders pattern. USDJPY was trending up until that pattern formed, and ever since then it’s trended down – thus confirming its reputation as a reversal pattern.
That long-term downtrend includes has remained within the confines of a descending triangle price pattern. A descending triangle is characterized by lower highs and a common low, with USDJPY’s common low at 104.
That level has held every time except during the pandemic-oriented hysteria in March. In fact, it’s held twice more since then with some bullish key reversals. (Remember that a bullish key reversal is when the price makes a new low and then closes at or near the high.)
All this long-term bearishness is partially offset by some recent bullishness, so there’s a lot of things going on with respect to USDJPY. This is why I try to think through certain strategies based on what I'm seeing in the market.
When analysing any currency pair, I start with a central premise. With USDJPY, that’s the governing price pattern in the form of that double top/head and shoulders that’s dictated a bearish behavior ever since.
How is that premise supported? By the price action in general and reinforcing patterns such as the descending triangle and a subsequent double top/head & shoulders pattern that’s formed within the triangle.
However, USDJPY is at a cusp right now – it’s about to reveal where it wants to go.
USDJPY is at what I call the MOT (Moment of Truth).
That’s because despite all the evidence it should go lower, I feel there's a trap coming up here. USDJPY should go lower. Instead, it’s at an MOT right now.
Those twin key reversals are rather ominous. Then last week USDJPY also put in a very narrow range bar which was almost an inside bar. Whenever one of these tiny inside or narrow range bars appears, it represents a suppression of energy.
This energy always has to be released eventually. Just look at USDJPY’s history to see where the price has exploded after putting in one or more narrow range bars.
But which way this time?
If the market takes out a new low, this would be a fertile area to get short because you would expect a follow-through. However, those key reversals project that prices are going up. USDJPY might cut through the lows, get everybody excited that it’s going down, and then rocket the other way.
I’m keeping an eye on the most recent downtrend line — any incursion above this line could open up something else other than the very bearish scenario I feel is most likely to happen.
Ultimately the market is going to tell me what it wants to do, of course.
But the number of possible scenarios here is pushing me to the sidelines. I’m going to watch how the market actually plays out. Let’s see what USDJPY does (as opposed to what I want it to do, which is drop decisively) and then we’ll jump one whatever trade opportunity is on offer.
In fact, there’s now so much ambivalence and ambiguity about USDJPY in my mind that I now feel there’s a better way to play the next yen move.
We can look at GBPJPY (the British pound versus the yen) to see if it offers any clearer guidance going forward.
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Here’s what you’ll find in my latest video analysis:
- Why I consider a Moment of Truth such a pivotal event for two particular currency pairs
- How I've made most of my money over the last years of trading
- What one price signal acts as “insurance” so you get added
protection from risk (21:29 is where I explain everything)
- What to expect from gold in the days and weeks to come, including a couple of key price levels to watch
- What just happened with the NASDAQ and how I expect that to trade going forward (starts at 32:42)
- Plus detailed teaching on the two biggest trades I love right now!
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