JP225 swing trade
I entered a short position on the Nikkei225 index.
These are the key economic factors and how they impact this trade idea, be it positively or negatively I will give each factor a rating, if the rating is 0, then this factor does not help our position, if it is 1 and above it supports our trade.
Economy
1. Inflation(CPI) We have seen a cooldown in inflation to 2.5% which is decent inflation that supports stocks, therefore it supports indexes. For this trade, it is a negative factor, because we want to short the Nikkei. So this factor gets a 0/1
2. Interest rates The latest hike in interest rates is a negative factor for the Nikkei, this year the BOJ is expected to hike rates more, therefore not helping the index. I'm giving this a rating of 1/1
3. GDP The past 6 GDP filings have been bad for Japan(except for the one in March we got 0.1%) so it is good for our trade idea, I'm giving it a 1/1
4. PMI Both the Services and Manufacturing PMIs show an expansion in Japan's economy, therefore being bad for my position. I'm giving this a 0/2(there are 2 possible points because I count Manufacturing and Services as two separate factors).
5. Retail sales have shown us a decrease starting from April 2023 when we were at 7.20%. Now we are at 2.4% with the latest release beating the forecast significantly, therefore it gets a 1/2
6. Unemployment recently has shown an increase, starting from Jan. 2024 when we were at 2.4%, to now at 2.6%. Overall we have a steady, range-bound unemployment, in the range of: 2.5%<->2.7%. I'm giving this a 1/2 rating because unemployment has increased, but not drastically.
Sentiment
1. Seasonality. Over 10 years the expected result of this month is -1.4% and next month is expected to be -0.8%. The five-year average suggests an even bigger downward momentum. It is expected by both the 5-year and 10-year averages to see a downward move for the rest of the year with a few slightly positive months. Therefore I'm giving this a 2/2
2. Retail positioning shows us that 64% of people are positioned long, we need to take this as an opposite signal because statistically, the masses of people are wrong. Therefore it gets a 1/1
3. COT the latest filing shows us that there was a -7.81% net change in positions, which indicates that large institutions may be starting to sell, the actual long/short contracts show us that only 30.7% of institutions are short, but this is a metric that needs time to change. Also, we see a level at which short positions start to increase and long positions decrease. Therefore I'm giving this a 3/4
Technical
I entered based on an "active zone" I took the entry as shown on the chart, if the index falls rapidly I will add another position, but we have to wait for that. The entry is good so it gets a 1/1
Summary
Trade expected RR: 3
Total points 11/17
64% analytical expectancy. This is good as most of my positions are often 50% to 60%
These are the key economic factors and how they impact this trade idea, be it positively or negatively I will give each factor a rating, if the rating is 0, then this factor does not help our position, if it is 1 and above it supports our trade.
Economy
1. Inflation(CPI) We have seen a cooldown in inflation to 2.5% which is decent inflation that supports stocks, therefore it supports indexes. For this trade, it is a negative factor, because we want to short the Nikkei. So this factor gets a 0/1
2. Interest rates The latest hike in interest rates is a negative factor for the Nikkei, this year the BOJ is expected to hike rates more, therefore not helping the index. I'm giving this a rating of 1/1
3. GDP The past 6 GDP filings have been bad for Japan(except for the one in March we got 0.1%) so it is good for our trade idea, I'm giving it a 1/1
4. PMI Both the Services and Manufacturing PMIs show an expansion in Japan's economy, therefore being bad for my position. I'm giving this a 0/2(there are 2 possible points because I count Manufacturing and Services as two separate factors).
5. Retail sales have shown us a decrease starting from April 2023 when we were at 7.20%. Now we are at 2.4% with the latest release beating the forecast significantly, therefore it gets a 1/2
6. Unemployment recently has shown an increase, starting from Jan. 2024 when we were at 2.4%, to now at 2.6%. Overall we have a steady, range-bound unemployment, in the range of: 2.5%<->2.7%. I'm giving this a 1/2 rating because unemployment has increased, but not drastically.
Sentiment
1. Seasonality. Over 10 years the expected result of this month is -1.4% and next month is expected to be -0.8%. The five-year average suggests an even bigger downward momentum. It is expected by both the 5-year and 10-year averages to see a downward move for the rest of the year with a few slightly positive months. Therefore I'm giving this a 2/2
2. Retail positioning shows us that 64% of people are positioned long, we need to take this as an opposite signal because statistically, the masses of people are wrong. Therefore it gets a 1/1
3. COT the latest filing shows us that there was a -7.81% net change in positions, which indicates that large institutions may be starting to sell, the actual long/short contracts show us that only 30.7% of institutions are short, but this is a metric that needs time to change. Also, we see a level at which short positions start to increase and long positions decrease. Therefore I'm giving this a 3/4
Technical
I entered based on an "active zone" I took the entry as shown on the chart, if the index falls rapidly I will add another position, but we have to wait for that. The entry is good so it gets a 1/1
Summary
Trade expected RR: 3
Total points 11/17
64% analytical expectancy. This is good as most of my positions are often 50% to 60%
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