A Swing Range Play on Cable Back Down? – Trade Closed

Trade Closed: 2012-03-05 02:25 ET

Good morning! Last week, both of my positions were triggered and the top of the range held. With a big week on the calendar coming up, I’ve decided to close down shop to avoid event risk.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

PCDPOD20120228.review.png

As my main man, Forex Gump, pointed out in a preview of this week’s potential market movers, we’ve got interest rate decision galore from four major central banks and the monthly US jobs report to cap off the week (Be sure to visit his blog to read more). With a lineup of potentially volatile events, it’s prudent to take some of your profits off the table to lock in a gain. With a line up like this, I decided to take it all off as there are way too many big sentiment shifting events lurking ahead. So, I closed out my position during the morning Asia session at market (1.5824).

1st half: +56 pips
2nd half: +106 pips
Total: avg. +81 pips/ +0.64% gain

Overall, a pretty simple trade in which I caught a bit of luck on Bernanke’s testimony on Thursday that traders took as no QE3 is in the works for now, as well as Friday as weak German data brought on a round of risk aversion behavior. Also, there was a solid bearish divergence signal that could have gotten those watching closely in at a better price.

With this big week coming up, I look to do a bit of research on the intraday effects of the upcoming events, and will probably look to do some day trades if I see great setups. Be sure to follow me on Twitter and Facebook to stay tuned to my latest ideas and market observations. Good luck this week and good trading!

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Trade Idea: 2012-02-27 19:49 ET

Good evening forex friends! Cable has held a range pretty well over the past few weeks and it looks like this second re-test may hold. Will we see the bottom in the next week or so?

PCDPOD20120228.png

I’ve thrown up the 4 hour chart to show how the pair has stayed within the 1.5650 to 1.5900 range over the past three weeks. So, it’s a simple range play setup on the pair by going short at the previously strong resistance level and targeting the support area around 1.5650 to 1.5700.

Fundamentally, the focus continues to be on the ever evolving European debt crisis story, with the most recent developments including another G-20 meeting with no new solutions and a fresh downgrade of Greece’s long-term ratings by S&P to Selective Default (the second downgrade since the bond exchange plan where investors are forced to take a loss). Overall, it still looks gloomy for Greece, and risk-on flows, as traders perceived the lack of action at the G-20 meeting as a sign there will not be another bailout for Greece.

On the forex calendar this week, both the UK and US calendars are filled with potential economic catalysts for some good volatility. The most notable would be the preliminary quarterly US GDP report on Wednesday. Looking back, the pair tends to end the session lower with the last 3 out of 4 reads coming in lower than expected. With the numbers trending lower, the odds are in my favor if I do see a retest before that report. Besides that, we’re seeing forecasted numbers lower than the previous reads for much of this week’s US and UK data. Could be more catalysts for risk-off flows.

With that train of thought, I’ve decided to scale into a short position around the top of the range highlighted on the chart. My stop will be half of the weekly ATR and my target will be the bottom of the range. Here’s what I am going to do:

Short half position GBP/USD at 1.5880, stop at 1.6030, pt at 1.5705

Short half position GBP/USD at 1.5930, stop at 1.6030, pt at 1.5705

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

This trade structure gives me a potential 1.6:1 return-on-risk if both positions are triggered, and since this is a swing trade, I am going risk 1% of my account.

As always, if the market environment shifts on a new catalyst, I’ll be sure to adjust my open orders or open position quickly. Be sure to follow me on Twitter and Facebook for updates. Thanks for checking out my blog…good luck and good trading!

  • Victor @Pipscovery

    Its less likely that GBPUSD will go up back in the range…it may slowly drift lower towards 1.5650