Appreciate your sharing of this trade - I'm currently involved in the JPY too. Long gamma, delta-hedged - it would be nice for my position if your trade works as it would mean my delta-hedges would make money! Currencies do move on interest rates though - technically the USD has been in a bull market for 18 months against the EUR and the JPY (up about 15-20% on the JPY) and ~5-10% on the EUR.... Q1
Ok, so we've entered our long Yen Stalking Horse position near the 117.30 level. We'll re-evaluate where we are after the long weekend. Ideally by then we will have begun to see some firming after this 4 month decline in the Yen.
We ended Friday slightly green - mostly a function of entering our position earlier in the day. We don't read a whole lot into it. Confirmation that an extended Yen rally has gotten underway will likely take one of two forms: An aggressive, no-holds-barred rally day that sees shorts buying to cover would be the best sign. Alternately we could see a couple weeks of base-building punctuated with some upside tests. We'd prefer the straightforward rally, but will have to see how it goes ... On the defensive side we reaffirm we absolutely will not add to the orginal Stalking Horse position until and if a rally gets underway and we are well in the green. Closing Thought: This is clearly a swing trade journal focused on capturing outsized gains by jumping in front of recurring seasonal patterns. As such, contemplating a change to the journal title to something like 'Swing Season' or 'Seasonal Swing Trades' ... not sure I've found the perfect title yet.
An absolutely essential task in trading seasonals is trying to avoid those fundamental events/factors that can play havoc with seasonal forces. One risk in my long-Yen trade, as mentioned earlier in this thread was an upcoming election. Elections can throw seasonal patterns out the window for months at a time. Turns out, Japan's ruling Liberal Democratic Party will only hold an internal election for its new leader to replace koizumi. Seems Abe is all but pre-selected & thus I don't at this time expect the transition to upset markets.
Absolutely beautiful Yen move today. At the most basic level a market can only do one of two things: either behave according to seasonal tendencies or go on tilt based on some unique factors in force at the time. Our strategy is to identify markets and periods when 'all things are equal' and seasonal forces will prevail in the market over our time horizon. To this point, Yen looks like it is behaving very, very well. Trade update: Note that this is the very first confirmation move on our long-Yen trade and our Stalking Horse is well into the green. Also note that from this initial rally the Yen often retreats again and treads water up until expiration (Sep 19) of the Sep futures contract. At that point the Dec contract will rally into mid-Oct. That is the money move - not today's rally. We will be looking to take on a more aggressive long position on any meaningful pullback over the next couple weeks. (Roughly the 117 level) Our preferred position remains short ITM puts and expect to press the offensive with more direct positions once either the Sep contract expires or market action suggests we are simply going to run higher.
For those who like to keep more busy I would suggest revisiting the short-CAD trade I abandoned earlier in the thread. Off-journal I've been 'scalping' CAD on the short side and have found it an interesting spread against the long-Yen position discussed here. For those who prefer a spread trade (admittedly not many on ET), short CAD/Long Yen definitely worth a look. For energy traders willing to trade strictly seasonal patterns, now looks good entry on the Oct Nattie Gas contract:
"Another lesson that I learned early is that there is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I've never forgotten that." From: Reminiscences of a Stock Operator "A seasonal pattern merely depicts the well-worn path a market itself has tended to follow. Of course, statistics can confirm the past but cannot predict the future. But if 'past is prologue,' it is a market's own consistency which provides the foundation for why the seasonal approach works." From: The Encyclopedia of Commodity and Financial Spreads
Long again at 117. Recall, Yen could chop around with an upside bias up through expiry of Sep contract. CAD reversal yesterday wiped out our scalping gains. Just demonstrates why we abandoned that campaign so early ... still a good scalp 'til Sep expiry.
Your analysis and timing were right on the ball. But will you hold long yen in isolation even if the dollar rallies against other majors? Looks like it's still holding up well despite everything else (and I mean everything) going down.
I operate on the notion that what the dollar does against other currencies is irrelevant. Now, if dollar rallies against Yen in opposition to what I expect will be a seasonal tendency, then that will be the sign to close out the position. In my opinion it is a mistake to try and look at too many things. This is a Yen/USD trade and it is that rate against which this trade will run green or red. This is also one reason why I like to scalp CAD on the short side in tandem w/ the long-Yen position - it offers a sort of imperfect hedge against potential USD-specific strength.