Close Open Orders: 2011-02-10 15:20
We finally got to my event of the week, the UK Interest rate decision. As expected, the Monetary Policy Committee (MPC) held rates at 0.5%, and just like the past few announcements, Cable rallied higher–unfortunately without triggering my orders…doh! Take a look!
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary day trading blog here.
As we can see in the chart above, the pair did creep lower throughout the week, but in today’s price action it looked like buyers were in full force at the Previous Day Low (PDL) and the bottom of the daily ATR.
There was a great signal for you intraday traders as we not only saw strong support in that area, but a divergence signal to boot! The pair did hold and possibly with the help of rumors that Egypt’s President Mubarak may step down to spark risk tolerance, the pair shot up higher, past the WO/DO/MaPs of 1.6100 and found resistance at the Previous Day High (PDH) of 1.6126.
With the week coming to a close, I have decided to close open orders to buy GBP/USD at 1.6000. No trade.
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Trade Idea: 2011-02-07 17:35 ET
Good evening! I’m watching Cable as the pair retraces after making highs last week around 1.6280. Is there another opportunity around the corner to jump in the trend higher? Let’s take a look!
Since the start of last week, GBP/USD rallied nicely from 1.5822 to 1.6280. Now, the market is pulling back and this could be a good time to jump back into the overall trend higher as potential resistance areas.
Using the Fibonacci tool, I see that the 50% – 61% Fib area lines up with the broken resistance around 1.6030, which may have turned into support. The Fibs also line up with the area between 1.6000 – 1.6050–major psychologically significant levels.
Finally, there is a hidden bullish divergence signal as we see higher lows in price action vs. lower lows on the stochastic indicator. I like the chances of this pair higher the closer it gets to 1.6000.
Fundamentally, risk tolerance is the overall market theme as we saw growth in the UK and US service sector, and fourth quarter US GDP (+3.2%). Also, Bank of England officials were a bit more hawkish at the last MPC meeting, and may continue to lean towards hawkishness as inflation in the UK rose to 3.7% y/y in December.
Of course, there are arguments for risk aversion as UK home prices decline and the most recent US Non-Farm Payrolls number clocks in way below consensus at +36K net jobs vs. +121K in December. The weather was to blame for this by the pundits, so I’m not going to put too much weight on it until it’s revision next month.
This week we do have major data to push the markets around, most notably the UK interest rate statement. This event is the reason why I’m looking to go long this pair. After the last four releases (no change in rates or quantitative easing (QE)), Cable rallied on average 100 pips before topping out. If we see no change to rates, quantitative easing measures, or rhetoric, we could see the same reaction.
For now, I’m going to set a buy order at the MaPs level of 1.6000. My stop will be 70 pips (a quarter of the weekly average true range of 277 pips). My profit target will be last weeks high, and I will trail my stop and add 1 full unit to my position every 70 pips.
Long GBP/USD at 1.6000. Stop/Trail/Add (STA) one full position every 70 pips. Target 1.6280.
Remember to NEVER risk more than 1% of an account on any single trade. Adjust position sizes accordingly.
For those not familiar with the scaling technique of trade management, please refer to the Scaling Lesson or my trade example from a previous post. If I am lucky enough to get triggered and the market moves in a one way trip to my target without retracement, the reward-to-risk potential is 10:1.
That’s it and stay tuned as I may adjust my entry/position depending on what the market does from now until the UK interest rate decision on Thursday. Good luck!