Day Trading the MPC’s Forward Guidance – Closed

Trade Closed: 2013-08-07 19:50 ET

Action was what I was looking for and that’s what I got…but not in a good way! The strong resistance at 1.5400 wasn’t able to hold for long, giving way to buyers and taking me out of my trade.

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

pcpod.20130808.review.png

The condition that medium term inflation does not exceed 2.5% is what attracted strong buying in Sterling. June’s inflation number was at 2.9% and the BOE projected that inflation will get to 2.0% by the end of 2015, but apparently, the markets have little faith in the BOE’s inflation forecasting skills. Seeing higher inflation and a possible need for a rate hike pushed the Pound above resistance and to the next major psychological handle at 1.55–stopping me out!

Total: -115 pips/ -0.50% loss

So, a very small loss on the day and it’s time to reflect on what I could do better. This was an unprecedented event as central banks are starting to give forward guidance, so I should have taken more time to wait and watch the price action play out. I was a bit anxious to jump into the trade as I thought we might see a quick reversal, just as we did at 1.5200 after the initial drop.

Second, being super confident on the monetary policy divergence dynamic, I did step away from my computer for a couple of hours. I think had I been in front of the screens as the market was first holding above 1.5400, and seeing the chatter on inflation forecasts, I would have cut my trade much quicker. By the time I got back in front of my screen a couple of hours later, the pair was already above 1.5450, and because I was risking so little, I decided to let it play out.

Overall, I should have been a little more patient, but on the bright side, I am trying to be more aggressive, comfortable to play short-term trades during this time of monetary policy uncertainty. Getting back to shorter term trading is going to be a long process of developing quicker real-time analysis skills, so I know I’ll be taking a few hits here and there as I learn. That’s okay by because I know I’ll get there. :)

That’s it for now. Thanks for checking out my blog and good luck to ya!

Trade Idea: 2013-08-07 6:37 ET

Good morning forex friends! The Bank of England’s Monetary Policy Committee just jumped on the central bank bandwagon by announcing forward guidance and boy, is Cable moving! Looking to play the action for quick pips today.

pcpod.20130807.png

The Monetary Policy Committee just came out with forward guidance for when the easy money will come off the table: unemployment below 7.0%. And they gave guidance that the UK may not see these levels until Q3 of 2016, but they also made it clear that it wouldn’t be a trigger. This caused a huge spike lower on Cable as shown on the chart, and even as I write this blog post, but as we’ve seen in past MPC statements, the pair was faded at the major psychological level; in this case buyers jumped in at 1.5200.

Now the pair is current trading around 1.5375, the top of the consolidation range. I actually am glad I had to write out this post first before trading because now I get to hop in short at a much better price than originally planned. I like a short play because now we know the the odds are high that the UK will be under easy monetary policy conditions for a couple of more years while tightening may happen as soon as next month in the US. To me, this favors the Greenback short-term and why I’m gonna play this as a day trade (or longer if it goes my way). I decided to short at market with a daily ATR stop and target they days lows. here’s what I am doing:

Short half position GBP/USD at market (1.5385), stop at 1.5500, max profit target at 1.5205

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. 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 1.56:1. So, it’s all in the market’s hands from here; let’s see how traders price out today’s news for the rest of the session. Stay tuned for updates and observations by following me on Twitter and Facebook!