Investors have missed out on a string of gains this past month.
That’s because they’ve been looking in the wrong place. They’ve been nervously waiting for stocks to regain their footing.
Meanwhile, I’ve been even busier than ever trading in another corner of the market… currencies.
Foreign exchange (FX) is the biggest market in the world. Trillions of dollars in value change hands every day.
Better still, FX has little correlation with stocks. So you can profit no matter what the stock market is doing.
That’s why I’ve been trading FX for 40 years. It’s been a big part of my success as a trader.
And subscribers to my FX advisory, Currency Wizard, have banked seven successive wins since August 5.
Today, I want to check out my latest win. It’s a trade on the U.S. dollar (USD) against the Japanese yen (JPY).
That way, you can see the kind of opportunities on offer…
Relative Strength
The key to understanding FX is that you’re essentially betting on the strength of one currency against another…
So, for example, if you thought the USD was going to rally against the yen, you would buy the USD/JPY currency pair.
And that’s what we did with the trade we’re looking at today…
As you can see in the chart below, the USD/JPY pair tanked after peaking back in July.
That down move coincided with the Bank of Japan unexpectedly raising rates, which strengthened the yen.
Meanwhile, weak jobs data in the U.S. increased the likelihood of interest rate cuts – something that would weaken the USD…
USD/JPY Spot Price
Source: eSignal
The pair’s down move in July started with the Relative Strength Index (RSI), a momentum indicator, reversing from overbought territory (upper gray dashed line).
The pair kept falling sharply as buying momentum continued to weaken.
But like any other market, this move can become overdone. And that’s what we saw.
The pair fell all the way into oversold territory (lower gray dashed line). That set up the USD/JPY for a potential bounce.
The bounce on August 5 happened in conjunction with the RSI forming a “V” and rallying from oversold territory. (We traded that August 5 bounce for a profit we covered here.)
But after rallying into the middle of August, the pair rolled over again…
And I was waiting patiently for another bounce.
There were two things I was watching closely…
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How the pair would react to the 144 level (green line) – the closing price from August 5’s major reversal.
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For the RSI to make a higher low (red line) – something that would show momentum is trending higher.
And that’s how things played out…
Take another look:
USD/JPY Spot Price
Source: eSignal
We entered a long position on August 23 in anticipation of another bounce. Then the RSI made a higher low. And having tested and held support (green line) multiple times, the pair resumed its rally.
So with our position in good profit, we closed out the trade just a week later for a quick $785.75 profit (on one standard lot).
That was our fifth successive winning USD/JPY trade since August 5. And it’s part of a seven-win streak that’s still going…
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Things to Learn
Of course, we’re not always going to generate winners. There are times when things just don’t go our way.
But that’s why we use tight risk management – something that’s been the hallmark of my trading career.
And with FX, there are some new things you’re going to need to learn. (I’ve provided special reports and instructional videos to subscribers of Currency Wizard. Paid up subscribers can find them here and here.)
But once you get your head around FX, you’ll see just how lucrative it can be…
Better still, it gives you another avenue to trade when stocks are tanking.
And with the Federal Reserve planning to cut rates later this month, there will likely be even more opportunities ahead…
Regards,
Larry Benedict
Editor, Trading With Larry Benedict