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Continue reading below to see how today’s volatility is a recipe for quick profits…
On July 27, I wrote about a great trading opportunity in the U.S. dollar and Japanese yen (USD/JPY) currency pair.
Back then, I explained that the dollar was ready to trade sharply lower against its Japanese counterpart.
My view was quite controversial and I know of a few other foreign exchange (FX) traders that dismissed my idea out of hand.
After all, the dollar has appreciated as much as 22.85% against the yen over the course of this year.
That would be a big move for a major stock market average like the S&P 500. And for a currency, it’s just monstrous.
Rising interest rates are one of the primary reasons why volatility in Forex is extremely high right now.
And with central banks around the world scrambling with how to deal with inflation, I don’t see the volatility dying down anytime soon.
But that’s great news for traders because it means there are tons of money-making opportunities out there… just like the one I wrote about on July 27 in USD/JPY.
And as you’re about to see, I ended up having the last laugh on that trade.
The technical setup I identified was a rising wedge, which is a reversal pattern.
At the time, USD/JPY was trading around 136.05. Meaning, it would take 136.05 Japanese yen to equal one dollar.
The target for the wedge was 132, which meant there was about 3% of movement in the currency pair to play for.
To see how this setup played out, here’s an updated price chart of USD/JPY…
When it comes to trading rising wedges, my rule is to wait for a breakdown below the support line of the wedge.
Once this event occurs, I target the lowest point of the wedge structure. This is how I came up with my ¥132 target.
As you can see, prices did indeed trade down to the 132 level (the line labeled “Target”) before reversing sharply higher.
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If you took advantage of this opportunity, you would have captured a 3% fluctuation in the exchange rate between these two currencies.
And depending on your position size, such a trade could mean hundreds if not thousands of dollars in potential reward.
Even a modest position would have yielded a tidy return.
I would know, because I took this trade myself. I keep a relatively small balance in my Forex brokerage account because of the leverage that my broker offers.
This means I don’t need to have hundreds of thousands of dollars in deposits in order to generate meaningful returns.
I like to keep only about $10,000 in my Forex account. And when I double that sum, I withdraw my profits and start all over again.
This allows me to allocate the bulk of my trading ammunition to other trading accounts that require a bit more capital, such as my options trading accounts.
Look for yourself at how these trades performed…
By August 1, I had closed the entire position for a gain of $1,420.19. And I only paid $5.63 in trading fees to my broker.
The best part is that this trade happened fast. It took only two days for USD/JPY to reach my target.
That’s what I mean when I say that currency markets are quite volatile right now. And there are many opportunities like this one every month.
As soon as I spot the next one, I’ll be sure to let you know.
Happy trading,
Imre Gams
Analyst, Market Minute
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