The EURJPY trading strategy gives forex traders the option to get exposure to more trading opportunities. If you want to learn a simple EURJPY forex trading strategy that will tell you the best time to trade the EUR/JPY cross pair you have landed in the right place.
If this is your first time on our website, our team at Trading Strategy Guides welcomes you. Make sure you hit the subscribe button, so you get your Free Trading Strategy every week directly into your email box.
If you want to learn how to trade forex, there are some things that you should know before you risk any of your hard-earned money. Learn more about forex trading by reading this guide: Forex Trading for Beginners.
The number one mistake a forex trader can do is to only focus on the USD cross pairs. While the major currency pairs are more stable, they are also limiting how much money you can make. Even during times of crisis, the Japanese Yen (JPY) is very stable. Consequently, during periods of global chaos, trading the Yen can be very useful.
Throughout this guide to trading EURJPY we’re going to share with you a simple EURJPY forex trading strategy that works.
Let’s begin with some key factors for trading EUR/JPY.
Why EURJPY Trading is Profitable
Many people don’t know to point out the difference between cross currency pairs and major currency pairs.
The problem is that forex traders don’t know the advantages of trading cross pairs.
If you still feel lost, here are two advantages of trading EURJPY pair:
- EURJPY price action is smoother than major pairs. Cross pairs can develop stronger trends compared to the major currency pairs. The conclusion is that currency crosses are “trendy”
- US dollar-based currencies are prone to spikes in prices due to the US news releases. The EURJPY pair can give you the advantage to insulate your trades from these spikes in price
If you’re a trend following trader, trading EURJPY may be easier than to trade currencies like EURUSD or GBPUSD. If you want to get some additional information about Trend Following Check Michael Covel, he has great insight.
Strong trends only develop 30% of the time in the forex market. With such odds, the market is inherently stacked against the retail forex trader. So, choosing the right currency pair to trade is important.
If you’re wondering:
What are the most trending currency pairs?
Certain currency pairs tend to exhibit stronger trends than the others.
When ranking currency pairs based on the rate of change we can note that currency pairs such as GBPJPY and EURJPY trend more than the other pairs.
Below you can see a case study of the average weekly rate of change for the most traded currency pairs:
The weekly statistics have revealed that the average rate of change in EURJPY is 1.24% over the past five years. The EURJPY is actually the second-best currency pair that is trading. As you can see, the Yen is included in 3 of the 4 most trending pairs.
Sounds good, don’t you think so?
However, measuring the average rate of change has its drawbacks.
Now, don’t worry.
We have made a new study measuring the average number of higher highs and higher lows (lower lows and lower highs) to determine if the EURJPY pair is developing strong trends or not.
Note* An uptrend is characterized by a series of HH followed by a series of HL. Conversely, a downtrend is characterized by a series of LL followed by a series of LH.
According to our weekly statistics, the best trending currency pairs are GBPJPY and EURJPY.
See the chart below:
Now, if these EURJPY forecasts are correct, we can develop a profitable EURJPY trading strategy. Once again, it is clear that the Yen is among the leaders.
Now, let’s discuss how to trade EURJPY because not all the forex pairs are the same. And, it all comes down to how currency pairs are quoted.
How to Trade EURJPY?
In the spot forex market, trading a cross pair involves something called legged.
Now, let’s define what is a “leg” in FX trading?
For example, to create a EURJPY trade, two other major pairs are traded.
So, how this works in practice?
If you want to trade EURJPY, the bank will need to buy both EURUSD and USDJPY to create the EURJPY cross.
You have to keep in mind that when you trade major pairs it involves two transactions.
Well, EURJPY trading involves 4 legs, that’s four transactions.
Here is how the EURJPY trade is constructed:
- The first leg involves buying EUR and selling USD
- The second part of the leg you’re buying USD and selling YEN
The two USD transactions (buy and sell USD) are canceling themselves out, leaving you with long EUR and short YEN. This is effectively going long EURJPY.
Now, this raises another question:
“How does this can influence your trading?”
Well, if you’re trying to make a EURJPY forecast, you need to spend an equal time analyzing EURUSD and USDJPY charts.
Our simple EURJPY forex trading strategy will incorporate these trading concepts and will teach you how to analyze EURJPY through EURUSD and USDJPY charts.
Now, before we reveal our EURJPY trading strategy…
Let’s see what is the best time to trade forex pairs such as the EURJPY pair.
Best Time to Trade EURJPY
Now, the forex markets operate around the clock 24 hours a day, five days a week. However, there are prime times when trading EURJPY can generate more profits. And, it’s tight to volatility and liquidity.
The volatility will help you overcome the cost of the spreads. So, it’s important to pick the right time to trade currency pairs.
In general, the best time to trade EURJPY is during busy news releases at 8:30 AM EST and when the London session and the New York trading session overlap and keep the markets liquid and active.
Planing ahead of the economic releases by doing some EURJPY fundamental analysis can yield you better EURJPY forecasts.
Now, let’s discuss one of the most elementary methods to calculate the best time to trade EURJPY.
We can rank the currency pairs by the average hourly volatility as measured in pips. If you’re interested to see what is the best hour to trade EURJPY, please check the graph below.
According to our hourly statistics, the best hour to trade EURJPY is 15:00 GMT. On average, at 15:00 GMT the EURJPY volatility is 21.4 pips.
Note* to construct the EURJPY average hourly we used one year worth of data.
Now, knowing the EURJPY hourly volatility may be good if you’re a day trader.
But, what about if you’re a swing trader?
Then, knowing the EURJPY volatility in pips per day of the week can be more useful. When we ranked the days of the weeks by the average volatility we discovered that the best day to trader EURJPY is Thursday.
According to the daily volatility, as measured in pips, on Thursday, the EURJPY pair generates on average 85 pips. So, that’s the best day to trade EURJPY cross pair.
Thursday is the most volatile session for EURJPY and that’s where the big money is made.
Now, if we take it one step forward, we can also look at the EURJPY yearly volatility. This will help us better assess the overall volatility.
Study the EURJPY volatility chart below:
Let’s now learn how to trade EURJPY with the experts and follow their analysis and strategies.
Let’s get started…
Simple EURJPY Forex Trading Strategy
All you need to know about trading the EURJPY trading strategy will be outlined in this section.
We’re going to use currency correlation so we can do EURJPY forecast.
We already established that trading EURJPY cross involves trading EURUSD and USDJPY at the same time. First, we’re going to show you a smart way not to get trapped in the wrong trade.
Because knowing when to stay out of a trade is as important as knowing when to enter the market.
“There is a time to go long, a time to go short, and a time to go fishing,” trading quote from Jesse Livermore, one of the best traders of all time.
So, the best time to sit out of the market is:
- If EURUSD is going up and USDJPY is going down, you definitely don’t want to trade EURJPY
- If EURUSD is going down and USDJPY is going up, you definitely don’t want to trade EURJPY
In both cases, the EURJPY would be flat.
See the EURJPY chart below:
This is a good methodology to use when trading cross pairs because it will teach you how to stay out of a bad trade.
Let’s move on…
For our EURJPY trading strategy, we’re going to use the three currency pairs (EURJPY, EURUSD and USDJPY) that form a closed loop.
Noting on the market can happen that will affect one of these currencies that you will not see within those three pairs.
In other words, the price action of the three currency pairs depends on each other.
Before you attempt to do any EURJPY buy or sell trades please consider our EURJPY “perfect storm setup.”
The perfect storm setup involves using cross-correlation trading.
The EURJPY long trade setup must satisfy the following trading conditions:
- EURUSD must be hitting support and rallying
- And USDJPY must be hitting support and rallying
See the EURJPY chart below:
Conversely, the EURJPY short setup must satisfy the following trading conditions:
- EURUSD must be hitting resistance and subsequently selling off
- And USDJPY must be hitting resistance and subsequently selling off
See the EURJPY chart below:
The reason why this simple EURJPPY forex trading strategy is so powerful is because, when the EURUSD and USDJPY go up (and vice versa when EURUSD and USDJPY go down) there is nothing else EURJPY can do but to go up (down).
As a rule of thumb, before you are getting into a EURJPY trade, you want to look at the “perfect storm setup” to develop across all the three currency pairs.
The strategy is not complete without having a protective stop loss and an adequate take profit target.
Check out our complete guide to stop-loss trading here: Stop-Loss Trading Strategy – 2 Tips To Safe Your SL.
If you need help with the take profit strategy check out: The Secret of Taking Profit and Why it is Important.
Finale Words – EURJPY Trading Strategy
In summary, the majority of the currency pair available for trading are the cross pairs so, it’s important to develop a unique forex trading strategy to tackle down cross currency pairs. Our EURJPY trading strategy can be used as a model to basically trade all your favorite cross pairs. When you combine this simple EURJPY forex trading strategy with the best time to trade EURJPY you can have a killer setup.
If you can’t trade during the most active EURJPY hours, try swing trading on Thursday, which is the most active trading day for the EUR to JPY pair. This may be a better approach for you.
Our EURJPY trading strategy can serve as a starting point along with the other EURJPY statistics so you can develop a strategy that fits your personality.
Thank you for reading!
Feel free to leave any comments below, we do read them all and will respond.
Also, please give this strategy a 5 star if you enjoyed it!