This is it, the only way to describe what has happened lately in Forex trading. And Friday was likely the cherry to top off the sour cake for most traders. GBP-JPY plunged another 2000 pips in a day before rebounding sharply. And AUD fell out of sight. People are asking why are some currencies loosing so much ground? Well, few years ago I could have thought that maybe I got drunk way too much, fell in a coma and during this time Australia and UK were declared uninhabitable and that’s the reason why nobody wants to hold these assets. But there was an answer in today’s business section of my local paper. Mind you, it was written by somebody, who’s finance expertise was honed on analysing neighborhood drive trough espresso stands. “Money is flowing into the safety of Japanese Yen”. What safety? On the same page of this paper there is also a comparison of major world stock markets over last 6 weeks. And “safety” of Japan was demonstrated by Nikkei performance- drop of 41.4%, the most of major indices. This includes 10% hammering on Friday.
First, all those still holding carry trades have seen their positions either liquidated by margin calls, or people simply dumped them. And if anybody thinks carry trade was not popular after last year, well, it is not true. Just a week ago I received an “Urgent report” from none other that Russell Sands, who claims to be one of the original turtles. Never mind, that he didn’t finish the turtle experiment. Nowadays, he is an expert of Forex trading and peddles unwanted services and advices. He was “urging” me to purchase his course and learn how to use 100:1 leverage and make 500+% percent just by using the carry trade. “First time revealed secrets of master forex traders”, that’s how he framed it. Doing it last week I’d be broke in matter of minutes. At one point on Friday GBP-JPY fell 400 pips in 5 minutes. Even a more modest margin of 25:1 would kill an account during this time. At any rate, liquidation of carry trades was one of the reasons for JPY rally.
Another one is that institutional traders have a herd mentality. Once it is apparent that money is flowing into something, they do it. Not necessarily because it makes sense, but because everybody else is doing it. In this case, their performance is comparable to other people with similar jobs. Most of them will have results (good or bad) somewhere in the middle of the pack, so their jobs are safe. Lemmings on the run. An avalanche of institutional money was needed in order to create a move of this magnitude. Commodities are falling, stock markets are collapsing,
the so called “professionals” can’t really sit on the sidelines with all the money. It is a luxury reserved for individual traders. Pros have to produce, so they run around like chicken with heads cut off, not knowing what to do, until they find a flavor of the month, like Yen and they all jump all over it.
Not that I was much smarter, since I didn’t see this coming. But than again, I don’t recall ONE voice from a year, or even a few months ago, that buy this time AUD-JPY would be at all time low. As a matter of fact, I have been nipping at GBP-JPY on a buy side, against the trend, with mostly decent results. And on Friday, after this stunning drop, my strategy finally paid off.

Three quick trades, each for 100 pips gain. The first one lasted all of 4 minutes. Yes!
I also had a trade in EUR-USD, much earlier in a day, which was stopped out for 50 pips loss.

Tomorrow I’ll take a look at a week ahead, and try to find something worthwhile. Not that technical analysis are all that useful at the moment, but neither are fundamentals. Nobody has time to pour over fundamentals, people are simply reacting to news. It is a panic in style of great 19th century financial panics. Great time to be alive if you are not loosing too much.

Mike K.