Yen Comes In

Those of you who follow USDJPY - and, perhaps, who read my last post - will know that the 5 minute divergence trade I had been planning triggered when Asia opened late on Thursday evening.

Here's how it went for me...

Not shown here, Tom and Iactually entered a small pilot position as it crossed the minor support line but got out when it started to falter a bit. This wasn't particularly slick.

However, we stayed watching closely, having determined to re-enter on a break of horizontal support. When this happened shortly afterwards, I was confident enough to short the pair at twice my standard lot size.

I then exited at the first indication of a reversal, electing to take the quick pips...

... and since I was so leveraged relatively, I harvested a shade under 1% for the account.

In hindsight this may seem way too timid, especially since the pair eventually made it all the way back down to the 5m 800 sma (... and at my trade size this would have represented a massive gain) but you have to bear in mind that at the time, Tom and I didn't know this, and with the last Friday of the month looming, I wasn't prepared to sacrifice any more with a tidy profit ready to pick off the table.

My last reflection is that whilst a well structured 5m divergence trade makes it back to the 5m 800 sma well over 70% of the time - against all pairs - in my backtesting, those first 'quick' pips are as close to a certainty as one gets in FOREX. Further, the subsequent reversal (as was the case here) can be severe and hard to stomach - particaulary if one is well leveraged.

A smaller lot size would undoubtedly have kept me in the trade longer, but this would - to my estimation - have been a dangerous game to play on a Friday.