The USD/JPY pair has been quite active lately, and as you can see by the chart certainly bullish. As many of you know, I have been long in this pair for quite some time now, and have been espousing the idea of this pair being a longer-term buy-and-hold type of proposition. With that being said, this doesn't mean that you should always be in the market.
99.9% of the time I will hold a long position in this currency pair going forward. However, there are times when the move is simply far too strong to risk losing any bit of profit on. Because of this, I actually closed out my positions right before the Non-Farm Payroll numbers out of United States on Friday. This pair tends to be very sensitive to that economic announcement, and I figured with it being such a parabolic move we were due for some type of pullback. With that in mind, I figured it was printed go ahead and take profit in the trade, and simply look for a better entry down the line.
Gaps need filled
One of the other reasons that I got out of this trade is that I know that gaps in the Forex market get filled eventually. It's very, very rare that you don't see that happen. Because of this, it would not surprise me at all to see this currency pair drop and try to fill the gap that was formed at the 85 handle after the Christmas break. In fact, that's essentially what I'm hoping for. If we can get some type of pullback to the 85 level and supportive price action, I would not hesitate to start buying hand over fist.
Alternately, we could see enough support at 86 to push the market higher as well, and I am willing to go ahead and take that trade also. I still see the 84 handle as a "floor" in this marketplace, so I have no problem giving my stop loss a little bit extra as far as room is concerned because I truly believe that we are witnessing a trend change. The risk to reward ratio is simply far too high for me to risk getting closed out of the trade on a sudden dip.
Having said all this, I fully intend to reenter the market, and expect to be able to within a few days at a lower price. Once we get that move, I will more than likely be holding onto the trade for much longer than this time, simply because I don't believe that the move will be parabolic at this point as everybody is aware that shorting the Yen seems to be a winning move. We should start to see a nice steady uptrend after this next pullback.