The daily chart for the GBP/JPY is perhaps one of the most interesting at present as it highlights several trading related issues which apply to all markets and time frames, and from which we can learn some important lessons. And the focus here is on the price action of the last few days, and in particular the euphoric reaction for the gbp/jpy on 29th August following comments from EU chief negotiator Michel Barnier, whose emollient tone sent the pound soaring in seconds, and resulted in the pair closing the day on a wide spread up candle. For the insiders and market makers such news is heaven as it provides the opportunity to drive the market higher in seconds and duly trapping traders into weak positions with the gbp/jpy then reversing equally sharply the following day, deflating much like a souffle. The key to understanding and seeing the truth behind such moves is, of course, volume and even a casual glance at the chart reveals an anomaly clearly, as well as instantly confirming Wyckoff’s third law of effort and result. In other words any dramatic move in price needs to be accompanied by appropriate volume which reflects this move, and from a comparison of equivalent price action and volume, this is not the case.
The message here is clear, simple, and unequivocal. The market markets are not participating and merely marking the market higher on the news, with the intention of reversing quickly thereby trapping a huge number of traders into weak positions, who are now stranded in the 145 area. This is a classic trap move which is employed at every opportunity. The market moves quickly in one direction to draw in traders on the fear of missing out, and once the trap has been sprung, it reverses equally quickly. This is the venus fly trap principle at work and so obvious from the associated volume.
The fear of missing out is one of the most basic of our trading emotions, and so easy to trigger, and is always associated with price momentum. A fast move is the trigger and for those nervous traders pressure builds until it is all too much, and they jump in, generally as the market is about to reverse. Over the next few months we are likely to see many more such moves for the British pound across its currency complex as the Brexit negotiations move into their final stages of either an agreement, or a no deal. So be prepared, and as always volume will reveal the truth behind the price action.
By Anna Coulling
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