AUDJPY Roller Coaster

Generally, I follow and prefer to trade the AUDJPY. It goes through unwinds from time to time as the bigger players suffer fits of risk aversion.

For the last few weeks we've been bouncing back and forth between 77 and 80. On the way down, with all the gloom and doom blaring in the media, it feels like we must be about to fall off a cliff.

It's difficult not to be scared. After all, anyone who was trading during the last couple years knows very well what it feels like to fall off a cliff. Ouch.

However, it's precisely when everyone is scared that prices adjust too much. How do you know when to get in without trying to pick the bottom? You get in when you have a strong resistance point. You can enter your trade, conditions permitting, and set your stop at a safe distance below the resistance point. You get in when you know there is a large potential upside and a low potential downside.

With all my work on robots I haven't been doing much discretionary trading lately. In a strange way, this is helping me develop patience.

My personal take is that we're going to have variability in the global economic recovery. Some portions of the world will contract while others expand, and then we'll probably get oscillations between those regions. This means that the roller coaster may be the main mode of the markets until everyone starts to settle down and stop pressing the panic button. This could take a very long time.

However, this is great news!

The roller coaster is a great place to trade. As long as you are only trading appropriate amounts of capital per position you have the ability to earn every time we get another cycle of exuberance and fear.

As long as we have people in both camps, gloom and doom vs surprising growth and strength, then the markets will be a great place to be. Just keep an eye out for anything that truly is a disaster in waiting.

In particular, I think we are at a point where different segments of the trading world exhibit different behavior. For example, Australia and Japan exist in a different economic climate than the USA. It's quite possible that traders in these regions, especially those not too tied to US events, won't be feeling risk aversion.

Similarly, sections of Europe seem to be recovering nicely. I can see that many regional traders would not be overly risk averse, in general, and that carry trade strategies might be entertained. For example, China and India are becoming more important in terms of world trade and they don't seem to be necessarily synchronized with the US.

This is another reason for our roller coaster. We may get different directions on the risk trades (carry trades) based on which financial center is generating most of the trading activity. Yet another reason to expect a choppy ride.

Related reading... yahoo finance.