Downtrend Retracement Play on Cable? – Market Review

Market Review: 2011-05-12 22:25 ET

Good evening forex friends! Looks like I missed out on another good move as the market never got up to my short orders at 1.6400. Here’s a review of price action and other missed trade opportunities through out the day.

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

PCDPOD20110511review.png

It looks like Cable bulls never got back in the game in Thursday’s session as the pair couldn’t make a full retracement to the usual Fib levels. It didn’t helpt that UK manufacturing production came out slightly lower than expected at 0.2% vs. 0.3% expectations.

With the pair already trading near my original profit target, I decided to close my open orders to short GBP/USD at 1.6400. No trade. Now, just because my original plan didn’t work out, doesn’t mean that there were other opportunities to jump in and grab a few pips.

In the chart above, we can see that shorting at the break of the PWL/WO was another valid short entry and good for over 100 pips. Also, for you perma-dollar bears, there was a divergence signal at the MiPs level of 1.6250 that indicated it was the bottom for the day. That counter-trend move was good for about 70 pips or so.

So, lots of pips to be had if you were attentive to price action–precisely the reason why we must always stay focused and flexible.

With the weekend coming up quickly, that’ll probably it for me, but if I see anything interesting to close out the week, I’ll be sure to throw it up on my Twitter and Facebook pages. Be sure to check’em out and have a great weekend!

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Trade Idea: 2011-05-11 22:59 ET

Good evening! What a day for Cable as the quarterly inflation report, sovereign debt worries, and commodity sell off brought extra action to the markets. Has the risk sentiment changed direction? It might have and a Fib setup may be the best way to play it.

PCDPOD20110511.png

It really is a difficult thing to tell if this is a true correction in risk, or a minor pull back in the long-term Dollar bearish trend. But for now, I’ll play this week’s trend lower if we see a pull back after Wednesday’s sell off.

In the chart above, we can see big moves in Cable after the Bank of England inflation report sent the pair higher with a statement of rising inflation expectations, and then after finding resistance at MaPs/WATR area around 1.6500, the pair dropped as USD rallied broadly on risk aversion and commodities selling off.

The pair has found major support/resistance once again around 1.6350–as it did in March and April–so we may see a pullback higher. If risk aversion sentiment continues to dominate, I think we’ll see short-term sellers jump back in around the area marked on the chart above (Fibonacci retracement, MaPs, top DATR). I’ll look to short there if 1.6400 is retested.

On the forex calendar, we have UK Manufacturing production (+0.3% survey). If this comes out positive, this could take Cable higher to the Fib area marked on the chart. It’s not a top tier event, so if it does take Cable higher, I don’t think we’ll see it move beyond top DATR. We also have a few US events (Retail sales, PPI, and Initial Claims) later in the trading session. US Retail sales and PPI don’t tend to come out the same day as UK manufacturing, so it’s tough to tell how price action will behave throughout the day.

So, my plan for today is to short in that potential resistance area. My stop will be above that area and my ultimate target will be the bottom of this week’s average range around 1.6210. I’ll will start with half my usual risk of 1% as I will scale into my position if it goes my way. Here’s what I am going to do:

Short GBP/USD half position at 1.6400, stop at 1.6460, pt at 1.6220

Initial risk is 0.50%. Trail stop and add every 60 pips.

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

With this trade structure, I have a max return-on-risk of 6:1. I’ll need some major volatility for that to happen, so hopefully today’s events bring it.

Stay tuned for updates and adjustments by following me on Twitter and Facebook! Good luck everyone!

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  • Maxiv

    I suppose this may not happen now… going so far down?!

  • pipcrawler

    @84c18490a1ff3e8767812d5b38588b53:disqus yeah, dropped after sellers held at 1.6380…. looks like a ‘no go’ for my pick today.