USDJPY has been in recovery mode since the “flash crash” on January 3rd. The pair plunged to as low as 104.82 that day, but the bears couldn’t maintain their momentum. The market reached 112.14 on March 5th for a rally of over 730 pips.
Of course, picking up all of it would have been pure luck. Besides, after such a violent selloff, there are hardly any bulls around. However, once the bottom was in place, there was a way to take advantage of roughly half of the surge to 112.14 so far.
The following Elliott Wave chart was sent to our subscribers on January 14th, when USDJPY was still hovering around 108.50. It shows that a little patience and the ability to identify a key level can compensate for the low level of precision the market allowed.
The findings on the 4-hour chart of USDJPY wouldn’t be possible without the weekly and daily charts of the pair, which are also included in our premium analyses.
USDJPY in Elliott Wave Context
This chart revealed a simple a-b-c zigzag in the position of wave (a), where wave “b” was a triangle. Which meant the plunge to 104.82 was a double zigzag in wave (b). So, it followed that instead being overly bearish, it was time to take a contrarian approach and put more trust in the bulls. As long as USDJPY was trading above 104.82, the bulls were going to remain in control in wave (c) up.
That was all the information we could extract from USDJPY’s 4-hour chart. Fortunately, it was enough. By January 21st, the pair was already approaching 109.80.
By the time we had to send the next portion of Elliott Wave analyses to clients, USDJPY was trading above the previous swing high. This allowed us to move the invalidation level from 104.82 up to 107.77, thus reducing the risk while still keeping a long position.
The new strategy dictated that as long as the pair traded above 107.77, the positive outlook was still valid. We hoped that the recovery from 104.82 was going to evolve into a textbook five-wave impulse.
By February 4th, it was far from becoming one. A pullback to 108.50 occurred, but 107.77 was still intact, so there was no reason to abandon the bullish idea.
Buy-and-Hold in the Forex Market
“Buy-and-hold” is a strategy typically used by stock market investors, who hope that over time stock prices will reflect the improved results of the underlying companies. It is a tactic rarely applied to Forex pairs, mostly because psychological factors have a much stronger influence on their movement.
In this example, however, holding a long position in USDJPY for two months without attempting to predict the minor fluctuations along the way led to a very good result. Last week, the market closed at 111.48.
Jesse Livermore once said that money is made by sitting, not trading. And indeed, moving in and out of position would have inevitably resulted in a smaller profit than simply holding a position the whole time.
That is the main reason we send premium updates only twice per week. We do not want to encourage frenetic trading, because the only beneficiary of such behavior is the broker, not the trader.
What will USDJPY bring next week? That is the subject of discussion in our next EW PRO analysis due out late Sunday!