By: Mike Kulej
Monday was a holiday in the U.S.A., which resulted in a relatively inactive Forex market. Most of the currencies had much smaller daily trading ranges on a very light volume.
For the GBP-JPY, the ever popular “beast”, Monday became an “inside day”. This means, that entire trading range was contained within extremes of the prior day. While not truly rare, inside days do not happen all that often in currency trading, due to around the clock nature of this market.
Very often, an inside day is followed by a day with increased activity and a directional move. One could try to take advantage of this phenomenon by buying this pair above Monday’s high, and/or selling it under Monday’s low. In its most basic form, trading of the inside day set up requires holding position until the close of the next day.
A little more refined strategy might call for a specific objective. For example, the target could be 50% of the inside day’s range added to the entry, for a buy, or subtracted, for a sell. With the trading range on Monday of almost 200 pips, that means about 100 pips move above the high or below the low. This translates to roughly 134.00 and 130.00, respectively. While not always profitable (no strategy is), the inside days are easy to spot and to trade.