Do you remember 2022? I still remember how the year started. For me personally it was a slow start, compared to 2021, when I was involved in a big project connected with the Tokyo Olympics. At the start of 2022 my work was slow (not busy), the only thing to look forward to was the Winter Olympics (boring for me), and on top of that I caught Covid from my daughter (not to blame the kid of course, she is in kindergarten). So not a fun time for sure, having to stay at home for over a week without being able to leave. Of course, in Japan there is always the stigma of catching Covid: what kind of idiot is so careless to catch Covid? Not the best of times.
And then in February Russia decided to invade Ukraine. War sucks in general, and I hate Putin's Russia, but I won't discuss this here. In terms of economics, all hell broke lose and inflation blew up all over the world. War brought inflation due to shortage of raw materials. Inflation brought interest rate increases due to countries looking to battle inflation, but not in all countries. Interest rate differentials bring opportunities in forex trading. So I became interested in forex trading once again.
The Japanese yen was particularly influenced by the changing dynamics of interest rates in 2022. It was under 120 yen per USD at the start of 2022. As the US FED started raising interest rates to combat inflation in March, while the BOJ did nothing, the yen fell all the way to 130 by the end of April. I was not trading forex at that time, but I noticed the move. Being a contrarian, I was thinking of going short, expecting the exchange rate to go back to its previous normal levels. Luckily I did nothing, as the yen weakened to 139 by July, and then 145 by September. By that time I was really itching to get in, but satisfied my itch by trading in my demo account. Also, I wrote a bunch of posts about the situation, analyzing and comparing with similar situations of quick yen devaluation in the past.
The BOJ was also paying attention to the quick devaluation of the yen, and in September they intervened in the forex market. It was September 22, Thursday, and due to Japanese selling of dollars, the exchange rate dropped from above 145 to as low as 140. That ought to teach the speculators a lesson, right? Well, it did for a few weeks, but in October the yen resumed its fall, going down to 151.944 on October 21. But let me back down a bit and tell you when and how I actually got back in the game.
As USD/JPY neared 150 in the middle of October, I decided that I am getting back in the game. This time I was not going to do carry trading. No, I was going to short USD/JPY, which actually had negative carry. I don't care. I knew that the yen was oversold, also I was expecting the BOJ to intervene once again, protecting the 150 level. It was a failproof trade. So I put some orders in, starting with 1 lot to sell at 149, then 1 more at 150, 2 lots at 151, and finally 4 lots at 152. Long story short, my first 3 orders got filled as the price blasted through 150 and above 151, and I had 4 lots short on Friday, October 21. I had another order at 152, and I had enough money in my account to continue adding until the BOJ decided to do something. So on Friday, I went to bed, a bit in the red, but confident in my trade. Come on, BOJ, do something!
So I woke up on Saturday morning, and saw that the BOJ had intervened at night. My positions were still open though, as my trade close order was at 146, and the lowest level it went down to was 146.15. Close, but no cigar. Would have been a nice profit, but these are the realities of forex trading. The closing level for the week was 147.65, which was still profitable for me, but these were unrealized profits. I analyzed the situation, and I decided to sell on Monday when the market reopened. I wanted to sell because I knew that market interventions do not work in the long run and that the price will likely go in the opposite direction as traders continue to provoke the BOJ.
So the market opened on Monday morning, and I was eager to get out. The spreads were wide, which meant that closing positions at the market price was rather unfavorable. This is where lack of experience got the best of me. I was watching as the market opened the price go higher as it looked like buying continued to provoke the BOJ. If I did not move fast, my profits will disappear! So I kind of panicked and instead of putting a limit order to sell at a fixed price, I sold at market. I got quite a bad fill, but even with that, I made 58,000 yen total on the trade. Just for reference, had my position been closed at 146, which was actually reached later that day, I would have made 170,000 yen. So I made some profit, but inexperience led to me leaving a lot of money on the table. Either way, I think I can say that I was back in the game.
After this profitable trade, I went back to watching the market for a few days. The USD/JPY rate stabilized under 150, and I started thinking of getting back in, but this time long for a carry trade. After all, the FED was going to keep on raising interest rates, and the BOJ was going to do nothing. So it was a no brainer that the yen will weaken. I put in a buy order at 146 and I waited. I was back in the game. And after my successful trade my spirits were high and I was ready to make more money. But trading forex is not easy...