I tried last week to trade yen against the news. I thought that the news release on China (that exports are much stronger than expected) will actually move the yen a bit upwards versus other currencies, then the Japan currency will resume its decline. In brief, I was arguing that the yen appreciation will last very short.
The trends seemed into my favor. The moving average was pointing downwards, other oscillators were also pointing down. Only the very short trend was pointing up, so I said to myself – why not?
The logic was simple. China will probably not depreciate its currency (as people speculate) and yen will continue to be the safe haven for carry trade as it is today. This actually happened. But I lost a lot of money on my trade. Why?
Well, I should have shown a bit more common sense on my approach. Since I am a finance person, I should have done my homework. The trend of yen going downwards resumed as I was betting. But not before yen appreciated so much, that my short selling of it went through the stop loss (actually it went double my stop loss). So what happened was was that I saw something, but (as in the forex trading happens often) I did not anticipate the extension of the trend. And this is how I screwed up a perfect trade…
Lessons to learn from here? Do your homework and calculations. This should be as simple as that, yet even the most experienced traders do not do it always…