EUR/JPY Trading Strategy: Secrets Behind Trading Cross-Pairs

15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

The EUR/JPY trading strategy gives forex traders the option to get exposure to more trading opportunities. If you want to learn a simple EUR/JPY Forex trading strategy that will tell you the best time to trade the EUR/JPY cross-pair, you have landed in the right place.

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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, or this one Forex Trading 101.

Thanks for your patience, letโ€™s continue learning the EUR/JPY Trading Strategy.

Introduction: EUR/JPY Trading Strategy

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 EUR/JPY weโ€™re going to share with you a simple EUR/JPY forex trading strategy that works.

Why EUR/JPY Trading is Profitable

Eur/Jpy Trading Strategy
Eurjpy trading strategy 9

Many people donโ€™t know the difference between cross-currency pairs and major currency pairs.

The problem is that forex traders donโ€™t know the advantages of trading cross-pairs.

If you still feel lost,ย here are two advantages of trading the EUR/JPY currency pair:

  • EUR/JPY 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 โ€œtrendyโ€
  • US dollar-based currencies are prone to spikes in prices due to US news releases. The EUR/JPY pair can give you the advantage to insulate your trades from these spikes in price

If youโ€™re a trend-following trader, trading EUR/JPY may be easier than trading currencies like EUR/USD or GBP/USD. 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 youโ€™re wondering:

What are the most trending currency pairs?

Certain currency pairs tend to exhibit stronger trends than others.

When ranking currency pairs based on the rate of change, we can note that currency pairs such as GBP/JPY and EUR/JPY 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:

Simple Eur Jpy Forex Trading Strategy
Eurjpy trading strategy 1

The weekly statistics have revealed that the average rate of change in EUR/JPY is 1.24% over the past five years. The EUR/JPY 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, donโ€™t you think so?

However, ย measuring the average rate of change has its drawbacks.

Now, donโ€™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 EUR/JPY 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 GBP/JPY and EUR/JPY.

See the chart below:

Best Time To Trade Eur Jpy
Eurjpy trading strategy 2

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, letโ€™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.

See below:

How to Trade EUR/JPY?

In the spot Forex market, trading a cross pair involves something called legged.

Now, letโ€™s define what is a โ€œlegโ€ in FX trading.

For example, to create a EUR/JPY trade, two other major pairs are traded.

So, how this works in practice?

If you want to trade EUR/JPY, the bank will need to buy both EURUSD and USDJPY to create the EUR/JPY cross.

You have to keep in mind that when you trade major pairs it involves two transactions.

Well, EUR/JPY trading involves 4 legs, thatโ€™s four transactions.

Here is how the EUR/JPY trade is constructed:

  • The first leg involves buying EUR and selling USD
  • The second part of the leg youโ€™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 EUR/JPY.

Now, this raises another question:

โ€œHow can this influence your trading?โ€

Well, if youโ€™re trying to make a EUR/JPY forecast, you need to spend an equal time analyzing EUR/USD and USD/JPY charts.

Our simple EUR/JPY forex trading strategy will incorporate these trading concepts and will teach you how to analyze EUR/JPY through EUR/USD and USD/JPY charts.

Now, before we reveal our EUR/JPY trading strategyโ€ฆ

Letโ€™s see what is the best time to trade forex pairs, such as the EUR/JPY pair.

See below:

Best Time to Trade EUR/JPY

Now, the forex markets operate around the clock 24 hours a day, five days a week. However, there are prime times when trading EUR/JPY can generate more profits. And, itโ€™s tight to volatility and liquidity.

The volatility will help you overcome the cost of the spreads. So, itโ€™s important to pick the right time to trade currency pairs.

In general, the best time to trade EUR/JPY 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.

Planning ahead of the economic releases by doing some EUR/JPY fundamental analysis can yield you better EUR/JPY forecasts.

Now, letโ€™s discuss one of the most elementary methods to calculate the best time to trade EUR/JPY.

We can rank the currency pairs by the average hourly volatility as measured in pips. If youโ€™re interested to see what is the best hour to trade EUR/JPY, please check the graph below.

Eur/Jpy Trading Strategy
Eurjpy trading strategy 3

According to our hourly statistics, the best hour to trade EUR/JPY is 15:00 GMT. On average, at 15:00 GMT, the EUR/JPY volatility is 21.4 pips.

Note* to construct the EUR/JPY average hourly, we used one yearโ€™s worth of data.

Now, knowing the EUR/JPY hourly volatility may be good if youโ€™re a day trader.

But, what about if youโ€™re a swing trader?

Then, knowing the EUR/JPY volatility in pips per day of the week can be more useful. When we ranked the days of the week by the average volatility, we discovered that the best day to trade EUR/JPY is Thursday.

Simple Eurjpy Forex Trading Strategy
Eurjpy trading strategy 4

According to the daily volatility, as measured in pips, on Thursday, the EUR/JPY pair generates on average 85 pips. So, thatโ€™s the best day to trade EUR/JPY cross-pair.

Thursday is the most volatile session for EUR/JPY and thatโ€™s where the big money is made.

Now, if we take it one step forward, we can also look at the EUR/JPY yearly volatility. This will help us better assess the overall volatility.

Study the EUR/JPY volatility chart below:

Best Time To Trade Eurjpy
Eurjpy trading strategy 5

Letโ€™s now learn how to trade EUR/JPY with the experts and follow their analysis and strategies.

Letโ€™s get startedโ€ฆ

Simple EUR/JPY Trading Strategy

All you need to know about trading the EUR/JPY trading strategy will be outlined in this section.

Weโ€™re going to use currency correlation, so we can do EUR/JPY forecast.

We already established that trading EUR/JPY cross involves trading EUR/USD and USD/JPY at the same time. First, weโ€™re going to show you a smart way not to get trapped in the wrong trade.

Why?

Because knowing when to stay out of a trade is as important as knowing when to enter the market.

โ€œThere is a time to go long, a time to go short, and a time to go fishing,โ€ a 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 EUR/USD is going up and USD/JPY is going down, you definitely donโ€™t want to trade EUR/JPY
  • If EUR/USD is going down and USD/JPY is going up, you definitely donโ€™t want to trade EUR/JPY

In both cases, the EUR/JPY would be flat.

See the EUR/JPY chart below:

Eur Jpy Tradingview
Eurjpy trading strategy 6

This is a good methodology to use when trading cross-pairs because it will teach you how to stay out of a bad trade.

Letโ€™s move onโ€ฆ

For our EUR/JPY trading strategy, weโ€™re going to use the three currency pairs (EUR/JPY, EUR/USD, and USD/JPY) 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 EUR/JPY buy or sell trades, please consider our EUR/JPY โ€œperfect storm setup.โ€

The perfect storm setup involves using cross-correlation trading.

The EUR/JPY long trade setup must satisfy the following trading conditions:

  • EUR/USD must be hitting support and rallying
  • And USD/JPY must be hitting support and rallying

See the EUR/JPY chart below:

Eurjpy Trading Hours
Eurjpy trading strategy 7

Conversely, the EUR/JPY short setup must satisfy the following trading conditions:

  • EUR/USD must be hitting resistance and subsequently selling off
  • And USD/JPY must be hitting resistance and subsequently selling off

See the EUR/JPY chart below:

Eurjpy Fundamental Analysis
Eurjpy trading strategy 8

The reason why this simple EUR/JPY forex trading strategy is so powerful is because, when the EUR/USD and USD/JPY go up (and vice versa when EUR/USD and USD/JPY go down) there is nothing else EUR/JPY can do but go up (down).

As a rule of thumb, before you are getting into a EUR/JPY trade, you want to look for the โ€œperfect storm setupโ€ to develop across all 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 โ€“ 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.

Final Words: EUR/JPY Trading Strategy

In summary, the majority of the currency pair available for trading are cross pairs so, itโ€™s important to develop a unique forex trading strategy to tackle cross-currency pairs. Our EUR/JPY trading strategy can be used as a model to basically trade all your favorite Forex cross-pairs. When you combine this simple EUR/JPY forex trading strategy with the best time to trade EUR/JPY, you can have a killer setup.

If you canโ€™t trade during the most active EUR/JPY hours, try swing trading on Thursday, which is the most active trading day for the EUR/JPY pair. This may be a better approach for you.

Our EUR/JPY trading strategy can serve as a starting point along with the other EUR/JPY 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.

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15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

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  1. Hi there! This post couldnโ€™t be written any better! Reading through this post reminds me of my previous room mate! He always kept talking about this. I will forward this article to him. Pretty sure he will have a good read. Thank you for sharing!

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