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[USDJPY] Trading the Path of Least Resistance

I have written about trading the path of least resistance several times in the past and what I described then is still relevant today. Traders are always looking for vulnerabilities and a side they can push without meeting significant resistance. It reminds me of an old adage, If it ain’t broken don’t fix it!

With that said, trends, especially on the forex market, have been hard to come by in recent years as what used to take a week, has set even months to develop are often formed then end in a what seems a blink of the eye.

However, we are in a new normal with rising inflation and central banks moving away from accommodating policies creating some divergences that have opened a path of least resistance.

Specifically, the JPY has come under attack as the Bank of Japan is seen as least likely to follow other central banks in tightening monetary policy. Combine that with rising energy costs and traders probed the path of least resistance (i.e. selling JPY) until the bottom gave way. USDJPY is currently +11.2% y-t-d while EUR is -5.0% vs the USD by comparison,

Scroll below to see a short video illustrating this point plus the key target for USDJPY and then for an article I wrote some time ago which shows the anatomy of a path of least resistance trading.

Source: The Amazing Trader

Forex Trading: Seeking the Path of Least Resistance

September 22, 2014

I spent the past week hiking in the Rocky Mountains. I was standing on a small log footbridge, around 10,000 feet above sea level, staring at a stream seeking its way around rocks. It reminded me of one of my 20 forex trading tips. Let me explain as it will help you to visualize how trends develop and how the forex market is constantly seeking the path of least resistance.

On the hike, we passed a rushing waterfall, saw water cascading down rocks above it as we trekked higher and then came to a gentle stream that fed the water below. I stood on the footbridge staring at the water flowing gently downstream, winding its way around rocks as it looked for the path of least resistance. This is one of my trading tips:

Markets are like a river flowing downstream constantly looking for the path of least resistance. When if finds a clear path the pace of flow accelerates. This is a way to look at trading…

The forex market is on a constant search for the path of least resistance, whether it be on the up or downside for a currency.  A trend starts out as the gently flowing stream, picks up momentum as with the cascading water, and then reaches a climax when it races down the waterfall.

It is often not a clear path, as a currency can get overbought or oversold and then either consolidate or retrace when it runs into support or resistance. During these times the market may look for another currency to buy or sell where the path has less resistance and focuses its attention there. It may come back to the first currency when the market gets more balanced and there is less resistance to resuming the trend.

So, think of a trend like a journey a river takes. It starts out slow as with the gently flowing stream, builds momentum like the cascading water, and reaches a climax like a waterfall before settling down when resistance appears. It will help you put the price action in perspective in whatever market you are trading.

Jay Meisler, co-founder




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