Fading the Guppy Rally

Forex Trade Idea: 2014-09-09

After taking a big hit at the week open, Guppy has rallied back to filled the gap and retest the 172.00 handle.  I’m looking to fade that move for a short-term play.

GBP/JPY 1 Hour Forex Chart

GBP/JPY 1 Hour Forex Chart

On the one hour chart of GBP/JPY above, we can see the pair rallying up to a strong area of interest, where a few technical arguments for a reversal can be made:

  • top of the average weekly volatility range
  • broken previously strong support area
  • moving averages to serve as potential dynamic resistance
  • Fibonacci retracement area of strong swing move lower

With the Scottish referendum vote set for next week, I think the pressure will be on the British Pound until then, even despite BOE Governor Mark Carney setting rate hike expectations for a spring 2015 possibility this morning.  So, I think this rally higher may draw in more sellers, at least for the week, which is why I’m going with a short-term short play on the pair.  I’ve already shorted at market, with my trade invalidation area being above the moving averages and my target at this week’s lows.  Here’s what I am doing:

Short half position GBP/JPY at market (171.02), stop at 172.52, profit target at 169.50

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1:1, which is fine for me on short-term plays. I might even cut this one quick ahead of the weekend whether or not it goes my way to avoid more news before the Scottish referendum vote.

Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary.  Stay tuned!