GBP/JPY in Selling Territory – Position Closed

Trade Closed: 2012-09-27 22:35

GBP/JPY 1-hour Chart

Is it just me or is that the smell of risk appetite I sense in the markets right now?

We saw some risk taking take place yesterday, as higher-yielding currencies generally held ground thanks to a positive reaction to the Spanish government’s austerity plans. Rather than relying on higher taxes, the proposals center around cutting back on government spending but without scrimping on pensions and grants.

Based on the structure of their budget plan, it seems to me that the Spanish government may just be prepping the markets for a potential bailout!

In any case, this may have shifted risk appetite in favor of currencies like the euro and pound, which got me thinking about my short GBP/JPY position.

The second issue that I was concerned about was that, as some of you have pointed out, price bounced right off the 125.50 MiPs. Scrolling back through my charts, you can see that this was actually a major area of interest in the past. With Guppy finding some support at that level, it’s very possible that we could see the bulls come back to take control.

Lastly, I’m also wary that not only are we approaching the weekend, but the month-end and quarter-end as well. We normally see strong moves on days like today, as traders close out their positions for bookkeeping or profit-taking purposes. This is also normally followed by huge gaps over the weekend.

That said, I didn’t want to expose myself to any wild moves, so I decided to just close out my trade while price was still consolidating around my entry point at 126.00.

Closed GBP/JPY at 125.99: +1 pip / +0.0%

So no harm done on this trade, at least I got out unscathed. If price does continue to fall, that’s just something I’ll have to live with, but I’m confident I’m making the right decision to sit out.

Thanks to all of you who commented and shared your thoughts below, specifically on that area of interest at 125.50. Hope y’all have a great weekend! Peace out!

Trade Idea: 2012-09-26 03:35

GBP/JPY 1-hour Chart

Funny how this trade came about.

Yesterday, I was contemplating buying this pair as it approached 126.00. Not only was this a former resistance level and a major psychological handle, it was also a former support and resistance zone, so I had a good feeling that we’d see some sort of reaction around this area again.

But I kept my finger off the trigger because I noticed two things:

  1. The pair had formed lower highs and lower lows, indicating that the trend favors further selling, and
  2. The tides of risk sentiment seem to be turning against the pound and in favor of the yen.

True enough, the pair managed to trade lower overnight, breaking through 126.00 in the process. Phew! Dodged a bullet there!

But now that the pair is trading below this significant level, I have a chance to jump aboard the sellers’ bandwagon and load up on a short position. In the event that price retraces to 126.00 from below, I’m selling this sucker.

Here’s my game plan:

Sell at 126.00, stop loss at 126.85, profit target at 124.75.

I’m setting my stop loss above the WO and the previous swing high, which I think gives the pair plenty of room to breathe in case the market decides to pull back above 126.00. As for my profit target, I’m gonna be a bit conservative and aim for 124.75, since there seems to have been interest there in the past.

All in all, this makes for a return on risk of almost 1.5:1. As usual, I’m only risking 0.50% of my account.

What do you guys think? How would you guys trade this pair? Throw me your thoughts and suggestions below!

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7 comments

  1. bosc

    Just a tought…
    Price just bounced from daily demand, which is previous supply. See red arrows.Blue arrows show that price had a hard time closing above or below the yellow line.

    Reply
  2. poojafx

    i think its a 50:50.. don’t know whether it may bounce back or beat the trend..i think it could very easily bounce back up again..cannot see any confirmed candlestick formation..
    the shorter term charts have already finished the downside and are looking to reverse..wot do u think?

    Reply
    • cyclopipcyclopip Post author

      Hi and thanks for dropping by, poojafx!

      I agree, it really can go either way. But I’m more inclined to sell at the moment because looking at the 1H chart, I see lower highs, which when connected form a falling trend line. Plus, risk sentiment seems to favor a short position at the moment.

      But I’m also open to going long in case we see an upside break as well. Gotta stay flexible in times like these, right? Haha

      How would you trade this pair?

      Reply
  3. fxsniper

    125.50 is the last you could see going by previous price action. so better scale that large TP back! 130. 00 here we come!

    Reply
  4. cyclopipcyclopip Post author

    Thanks for the insight, guys!

    I decided to close the trade (exited at 125.99) because of your
    compelling arguments and also because it’s the end of the week, month,
    and quarter. Lots of risk!

    I’ll be giving you all a full update later on.

    Reply
  5. സലീം (Salim)

    Cyclo,

    My two cent: I can see support at 125.50 area in a daily chart. GBP/USD found support a 1.6130 on a weekly chart and pull backed.

    So, If you enter this trade then should watch price action 125.50 area. There is one thing to remember, Capital Preservation. I hope it will go to your favour.

    Good luck.

    Reply
    • cyclopipcyclopip Post author

      Wow, thanks for the heads up, man! I totally didn’t notice 125.50. If I get triggered and price drops down to that level, I will move my stop to break even.

      Cheers!

      Reply

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