Cross-Eyeing: Head And Shoulders Pattern on GBP/JPY – Trade Taken and Closed!

Trade Update: 2011-03-09 23:18

GBP/JPY chart

Interestingly, trade balance figures showed that the U.K. exported more than anticipated as the deficit actually shrunk to 7.1 billion GBP. It was expected that the report would post a deficit of 8.5 billion GBP.

STILL, it seemed that the markets paid no attention to the report as it failed to push the pound much higher. Seeing that hanging man and doji form on the 1-hour chart, I figured that resistance was holding and I decided to jump in at around 134.04.

My trading was working out for the most part, as price did end up falling midway through the New York session. Price fell to as low as 133.67, just a few pips from my first STA point (Remember, I was gonna add after every 40 pips and move my stop accordingly). However, that turned out to be the bottom of the move and the pair retraced! I eventually just closed out my trade at breakeven when I had the chance and decided to call it a day.

Here’s a recap of what I did:

Shorted GBP/JPY at 134.04, initial stop loss at 134.45, aiming to take profit at 133.00.

Closed GBP/JPY position at breakeven at 134.04.

In hindsight, I probably shouldn’t have expected a big move today since there was no hardcore mover and shaker to rattle the markets. Secondly, I probably should have considered closing the position when the pair failed to break past the London session lows. A doji had formed on the 15-min chart, and Stochastic was also oversold. Then again, I didn’t expect it to jump back up so quickly.

So no harm done, but I definitely thought it was a solid trade idea.
Perhaps traders are just waiting for the BOE statement due later today… Hmmm.. Maybe I should consider a trade the news setup??

Thanks for the comments fellas and good luck to those who are trading the rest of the week. If you got any questions regarding my trading setups or my Weekly Winner blog post, hit me up with comments below, or on MeetPips.com and Twitter!

Trade Idea: 2011-03-09 2:20

GBP/JPY chart

I spy a sweet little setup with my (not so) little eye! Whip out your GBP/JPY 1-hour charts and you’ll see exactly what I’m talking about. Price is approaching the Weekly Open (WO) and the 134.00 major psychological handle, levels that have held well in the past.

Y’all thinkin’ what I’m thinkin’?

Head and shoulders time, baby!

GBP/JPY chart

Zooming in on the 15-minute chart, this is what it looks like. Ideally, I’ll be entering somewhere in the area of the WO and today’s upper daily ATR (DATR). But since there’s a bit of event risk involved, I think I’ll wait until more favorable signals materialize before I commit to shorting. By that I mean I’ll be keeping an eye out for reversal candlesticks to give me the go signal to sell. Patience is a virtue, my Cyclo-momma always says!

So what news report is coming out today?

I’m talking about the U.K. trade balance report of course! I think this report could either make or break the pound trading today. Expectations are that the trade deficit shrunk from 9.2B GBP to 8.5GBP. There are those though, who suggest that the deficit could have shrunk more than expected, seeing as how recent manufacturing reports printed decent figures.

Still, I can’t help but wonder how the recent upswing in commodity prices have affect input prices. You might be asking, what the heck does this have to do with trade figures?

Commodity prices are correlated with raw material prices. This means that as commodities rise, so does the value of raw materials and other inputs that the U.K. imports. With that said, the rise in import prices may just offset the improvements in exports made by manufacturers.

Still, I think it’d be prudent to wait for the results of the report before I make my move. I think it’s just the safer play and I don’t wanna get caught up on the wrong side of a move now do i?

If I do end up taking this trade, I’ll be setting a tight stop, perhaps around 40 pips away. That way, if the right shoulder decides to give way (just like Big Pippin‘s knee), I’ll be able to cut my losses short. Either way, I’ll only be putting 0.5% on the line with this trade.

Now to talk profits! I’m saying this with my fingers crossed, but if things go my way, I’ll be looking to add to my position every 40 pips or so. Assuming price goes straight down to hit my ultimate target, the head and shoulders’ neckline in the 133.00/lower DATR zone, I’ll be walking away with an almost 6:1 return! Pretty sick, don’t you think?

Anyway, for now, I’mma sit tight and wait for those candlesticks to tell me if and when I should start sellin’. Any of you thinkin’ of doing the same?


  • Pipster4lyphe

    Well, on the H4 it’s more obvious, or you waiting to play a break of the neckline, or do u intend to play @ the formation of the right shoulder if get ur reversal candlestick there, It sure looks good to me….let’s see how it pans out!!

  • Pipster4lyphe

    I kinda like when my zig-zag indicator give me the pattern….it’s more convincing, on this one it doesn’t, but the wait and see approach is always the best option.

  • surindm

    News Impact over I suppose.

  • Pipster4lyphe

    Well, on the H4 it’s more obvious, or you waiting to play a break of the neckline, or do u intend to play @ the formation of the right shoulder if get ur reversal candlestick there, It sure looks good to me….let’s see how it pans out!!

  • Pipster4lyphe

    I kinda like when my zig-zag indicator give me the pattern….it’s more convincing, on this one it doesn’t, but the wait and see approach is always the best option.

  • surindm

    News Impact over I suppose.

  • Cyclopip

    @Pipster4lyphe

    I intended to enter on the formation of the 2nd shoulder. Right now, it seems to be holding up still, but with the BOE statement coming up today, we could see some pretty wild moves. If the BOE signal that they won’t be making any rate hikes soon, GBP/JPY might just break through the neckline.

  • Cyclopip

    @surindm

    News didn’t have as much of as an impact that I thought it would. maybe people we’re just chillin’ out before the BOE statement later today.

  • Cyclopip

    @Pipster4lyphe

    I intended to enter on the formation of the 2nd shoulder. Right now, it seems to be holding up still, but with the BOE statement coming up today, we could see some pretty wild moves. If the BOE signal that they won’t be making any rate hikes soon, GBP/JPY might just break through the neckline.

  • Cyclopip

    @surindm

    News didn’t have as much of as an impact that I thought it would. maybe people we’re just chillin’ out before the BOE statement later today.

  • jade101

    pips like a foreign exchange right, but in it to win and be the best pipster.

  • jade101

    pips like a foreign exchange right, but in it to win and be the best pipster.