March AUD/JPY Free Fall

On February 27th the AUDJPY reached 100.41 at it's highest. Less than a month later, on Mar 20th we got as low as 88.18 for a short period of time. That's a difference of more than 1200 pips in approximately 3 weeks!

There's no way to be sure, except to wait and see how things turn out, but on the 16th we hit 88.16 when the AUDJPY bottomed out. At the very least there is some healthy resistance around this level.

So, what to do? Should we panic and run away from the market? Should we dump our entire life savings into the market based on our belief of this being a local bottom? Just how should we tackle this situation?

The fact that we've seen a massive fall, enough to create margin calls in those that are careless, generally means we are looking at an opportunity. However, the flip side is the fear of a continuing fall. So, greed and fear are both sitting on our shoulders whispering in our ear.

My advice, or at least my own plan anyway, is to stay disciplined and trade within margin percentages that provide a high relative level of safety. However, when the markets are down like this I do want to increase my holdings and be ready to participate in a rebound.

The plan? Allocate small amounts of additional capital, if required, to buy lower and lower positions. Remember though, I'm a carry trader and am very happy to hang onto AUDJPY through any type of downturn as long as I can avoid putting my account at risk of a margin call.

Should I Stay or Should I Go Now?

Well, I'm really at an impasse with respect to the current state of the AUD/JPY. There are all kinds of messages out there that point to some serious downside risk, but at the same time it has fallen a great amount already.

So, to cut short a lot of withering and dithering, it's time to start sticking a toe into the market. I want to start accumulating some small positions, without risking any serious amount of NAV at any one time, so that I can increase my holdings during the next sustained upswing.

Crushed By The AUD/JPY Rollover?

How did you do during the recent AUDJPY (AUD/USD to USD/JPY) freefall?

If you were paying attention you noticed the double top happen not too long ago -- the one I blogged about recently. That was your warning that the market was facing a potential reversal.

The market fell pretty fast. I hope you weren't sitting on any large unprotected positions.

While I don't have the patience to stay completely out of the market until large drops have happened, I can certainly add additional capital to my account to take advantage of the drop and treat it like the opportunity it is. However, I do have to wonder if this is going to end up being a retest of the DOW lows since the most recent bottom.

So, I now have three things to consider:

1. Is the market going to recover quickly, such that I want to be in it?
2. If I jump in the market now, is it going to sink and retest lows due to a DOW decline?
3. If the market does continue to decline, will it do so over a long enough period for me to be ready to inject some more capital at that point too?

Honestly though, I'll probably just execute a plan the emulates dollar cost averaging and not worry about it. I really enjoy being involved in the market without having to seriously worry about it.