Forex Trade Idea: GBP/JPY Consolidation Breakout?

Price action in Guppy has been tightening up recently, forming a nice rising wedge pattern. With retail sales coming from the U.K., a forex breakout play might be in order.

GBP/JPY 4-Hour Forex Chart

GBP/JPY 4-Hour Forex Chart

This is a simple news event play off of what may be a big increase in volatility from the upcoming U.K. retail sales event this Thursday. The last time we saw U.K. retail sales data, it surprised to the upside and was a likely contributor to the strong near-400 pip rally that followed. Of course, I don’t know if we’ll get the same surprise number (0.2% vs. 0.0% previous) or reaction, but with the market consolidating into a rising wedge pattern, the odds are forex traders are just waiting for some catalyst to take this market somewhere.

Since I know that I don’t know what we’ll see, the best way for me to play this event is with tiny positions in the direction of a breakout.  For the upside, I’ll look to buy above the recent highs of 185.59, with an upside target at the previous resistance area highlighted in the chart above. On for the downside, I’ll look to short below that previously strong level of interest (184.70), with a target at the previous swing lows around 182.00.  Here’s what I’m doing:

Short quarter position GBP/JPY at 184.50, stop at 185.50, max profit target at 181.00

Long quarter position GPB/JPY at 185.75, stop at 184.75, max profit target at 188.00

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 0.25% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio with either trade of at least 2.25:1.  If a trade is triggered, I’ll look to close the other order automatically using an OCO order.

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!