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Weekly Summary of Forex Trader Sentiment and Changes in Positioning
It’s been a difficult 24 hours for our trend-following Momentum2 and volatility-friendly Breakout2 trading strategies, as extreme market choppiness on the Bank of Japan and European Central Bank interest rate decisions has made both systems flip direction across US Dollar and Japanese Yen currency pairs. No trading technique is without its flaws, and we’ll readily admit that our sentiment-based trading strategies tend to do poorly in choppy market conditions.
There are early signs of significant turnaround in the Japanese Yen and potentially an upside break in the Euro, and indeed our Momentum2 system has now gone long EURJPY (as well as USDJPY, AUDJPY, and CHFJPY. The severity of the reversal suggests these could be good trades, and in fact the EURJPY position itself is already over 200 pips to the good.
Yet we must emphasize that market conditions remain challenging; if you were fortunate to have automated the “Momentum2” trading system on the JPY pairs ahead of the surge, keep stops tight. If you weren’t, keep leverage low on any subsequent trades given extreme market indecision.
Download eight years’ worth of SSI data via this link.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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