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Neil Gladwin Anyone who has met me will no doubt know about my passion for trading currencies. This week I would like to share with you some work I have been doing on the Japanese Yen future contract (JY-SpotV) traded on the Chicago Mercantile Exchange. I suggest a good place to do any research on a contract before you get started is the actual exchange website. In this case you can visit www.cme.com to get more information.
Anyone following along the movement of the Yen this year will no doubt be aware that 2005 has not been the best for the bulls. In fact, looking at the weekly chart below (Chart 1) you can see that the Yen topped mid January this year, the highest price since mid 2000 and has continued a steady decline ever since. One thing grabs my attention on this chart…looking at the range resistance card from the low in 2002 up to the high in 2005 you can see that the Yen is sitting very close to the 50% retracement level right now.
Chart 1
click chart for more detail Zooming in for some finer detail and looking at the daily chart below (Chart 2), a recent formation has occurred which is one that I am sure many of you are familiar with: the double top. You can see that this formation just completed a 200% retracement of the earlier range. I am a big fan of 2 and 3-day swing charts and you can see that I have used a 3-day swing chart to filter out some of the more insignificant movements. Nice move wouldn’t you agree? However, I was looking for more!
Chart 2
click chart for more detail Being an avid follower of some of Gann’s more time-specific rules, I applied the Time By Degrees tool to the top in January this year as it is a significant point in price. To my surprise (Chart 3) Friday the 21st October (last Friday) was exactly 270 degrees out from the top in January.
Will we see a reversal in trend at this point?
Chart 3
click chart for more detail What does all this mean? When sizing up a good opportunity in the markets it takes no time at all to find a trade. Spend a little more time getting to know a certain stock or market - whatever that might be.
I have 3 things going for me in this trade. First, price is around 50% of the major range. Second, the completed double top formation running down 200%. And third, a Time By Degrees date lining up. It is Monday (24th October) and my money is long the Yen…literally!
The current Yen contract is the December 05 contract, or the JYZ5. Careful here, my suggestion is that unless you want to pay for ¥12,500,000 (about $145,000 Aussie) upon delivery, make sure you have rolled your contract over to the following month. In this case the March 06 contract. For Yen futures, the last day of trading is the second business day before the third Wednesday of the month, and the settlement on this contract is physical delivery on that third Wednesday.
It will cost you around US$2,700 in initial margin per contract, so some of you may want to trade the E-Mini version, which is only US$1,350 in margin. One tick on the full size contract is worth US$12.50 while it is US$6.25 on the E-Mini, so you can see the risk (and reward) is a lot less! By the way there are 100 ticks in a cent, so if the Yen goes from 87 to 88 cents, a full cent movement would be worth US$1,250 on the full size contract.
Regardless of where this trade goes, one thing to be mindful of is not to jump in and take a trade just for the sake of taking a trade. I am a big advocate of putting in the time to do a bit more work.
Happy trading!
Neil Gladwin
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