How to trade on USD/JPY
Perhaps no other currency pair is as beholden to technical support and resistance as USD/JPY. In large part, this has to do with the prevalence of substantial orders, where the order level is based on technical analysis. USD/JPY displays a number of other important trading characteristics when it comes to technical trading levels:
USD/JPY tends to respect technical levels with far fewer false breaks. This situation is typically due to the presence of substantial order interest at the technical levle. If trend-line analysis or daily price lows indicate major support at 99.80, for example, sizeable buying orders are likely to be located there. The bank traders watching the order may buy in front on it, preventing the level from ever being touched, or tested. If the selling interest is not sufficient to fill the buying order, the level will hold. On the other hand, if the technical level is breached, it's a clear indicaiton the selling interest is far greater and is likely to continue.
USD/JPY's price action are usually highly directional (one-way traffic) on breaks of technical support and resistance. When technical support or resistance is overcome, price movements tend to be sharp and one-sided, with minimal pullbacks or backing and filling (prices coming back to test the breakout level). This situation is the result of strong market interest overcoming any standing orders, as well as likely stop-loss orders beyond the technical level.
Spike reversals (sharp - 20 to 50-pip - price movements in the opposite direction of the prior move) from technical levels are relatively common. Spike reversals are evidence of a significant amount of market interest in the opposite direction and frequently define significant highs and lows. They're also evidence that the directional move that was reversed was probably false, which suggests greater potential in the direction of the reversal.
Orders frequently define intraday highs and lows and reversal points. Japanese institutional orders also tend to be left at round-number prices, such as 100.00, 100.25, or 100.50.
|
Linear Mode
