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The trap we’re going to look at today is what I refer to as a trap break pullback, which occurred in this area here. So far we’ve got the trap, we’ve got the break, and we’re waiting for the pullback. As traders have been playing off this level of support, there’s been resistance obviously on many occasions and the key is that price actually comes back into the level and acts as if it’s going to follow through. So, it actually does bounce off the level, and this gives the trader the impression that the market is going to continue for them to make some money.
However, no sooner did they commit that money and they get drawn into taking a trade, the price breaks down through that level, trapping some of those traders in those long positions. So, if we get a pullback, this looks like a fairly decent place to get short. And now, this is also a smart trade from the perspective of the US election, and one of the major benefactors of the uncertainty going into the election and because the election is so close, the JPY will strengthen and continue to strengthen, which is what we’ve seen in other pairs across the board along with the CHF.
So, in actuality, what you need to be thinking about going into these elections is who is going to benefit and who is going to struggle, and in essence the USD is going to struggle and the safe haven currencies – the JPY, the CHF – are going to benefit. So, just beyond the idea of this trade, you want to bear that in mind, and if you can get involved in maybe selling the USDJPY and trades like that, that may make sense. Sell commodity currencies. Buy safe havens. Sell USDs and you never know. You might be on the right side of a monumentous moment in world and US politics. And as a result of that, you will be well rewarded for that foresight prior to the event, because there’s no fund manager or institution in the world who will be open to dollar risk going into the election, right, and same with the stock markets.
So, they have to position themselves and they’re naturally going to do that before the election, and obviously the election is so tight. They’re very worried, so they’re having to reprice because they didn’t anticipate the race being this close. So, just bear that in mind. There may be some fantastic opportunities. The last time we had a big constitutional event like this was Brexit in the UK and we profited hugely from that event, circa five thousand pips. It was a Korea type trade. These on single positions, so there’s absolutely no reason why this wouldn’t have a similar impact, if not something bigger.
So, bear that in mind. Hopefully you make some smart choices. Don’t bet the farm. Always manage risk accordingly so that even if something changes between now and then, you’re not going to be overexposed. Don’t take too much risk and you’ll be just fine.
Disclaimer:
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Great tips. Based on the video, you’re suggesting that the cadjpy might just rebound up off the support that it is on now? I see a nice indecision candle forming on this area.