April 25 – April 29, 2011 Weekly Winner: GBP/JPY for the C-c-combo Breaker!

Before you check out last week’s sick setup, lemme remind y’all to brush up on my trading framework by reading my introductory post on the Weekly Winner.

April 25 – April 29, 2011: GBP/JPY Price Action Review

GBP/JPY Hourly Chart

Though almost all of Europe was away on holiday on Monday (party like a rockstar yo!), the pair surprising moved a lot. It started its move down below 135.00, where it stayed and consolidated until the next day.

I suppose the markets didn’t want to commit to a position right before the release of the U.K. GDP report, as the pair traded sideways until the report hit the airwaves. Though results came in as expected, it seems the markets were relieved to see any signs of growth from the economy in Q1 2011 after Q4 2010 performed so poorly. Need I remind you of that -0.5% figure that had U.K. investors peein’ their pants? Haha!

This dictated the pace for the next day or so, as price peaked to hit the 137.00 handle, near where the upper WATR was. From there, the pair slid back down below 136.00 as the markets rested at the end of the week… presumably to watch Prince William get married. (Don’t cry, Huck!)

Anyway, the setup I’m raving about is the breakout on Wednesday. As you can see, it caused quite a sharp move, thanks to the U.K. GDP. If we had gone long above 135.00, at around 135.20, we could have made bank yo!

There are two ways we could’ve played this.

  1. We could’ve gone long with a 40-pip stop, adding to our position every 40 pips. If we had set our profit target conservatively at the 136.00 handle/PWH, this would’ve been good enough to give us a return on risk of 3:1.
  2. We could’ve also opted to play this more aggressively by aiming a bit higher, at the 137.00 handle near the WATR. Using a stop of 60 pips and adding to our position accordingly would’ve allowed us to catch a bigger chunk of the move up. The end result? A 6:1 reward-to-risk ratio!

Now, I was a bit annoyed that I was unable to catch this move, but hopefully I’ll be able to make up for it if my current GBP/JPY trade turns out to be a winner. Hopin’ that sucker pops up again. Wish me luck, fellas!