Fib Setup Forming on Cable? – Open Orders Closed

Market Review: 2011-06-22 22:30 ET

Nice price action in Cable during the Wednesday session and the good news is that it looks like my gut was somewhat right on how the market played out. The bad news is that I may have been TOO conservative on my entry…doh!

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

PCDPOD20110621.review.png

In the updated 60 min chart above, we can see that the wall for the bulls to break was 50% Fib/MiPs level of 1.6250. Unfortunately for the bulls, sellers wouldn’t let it break and it soon became a launching point for some major GBP selling.

The catalyst came from rhetoric from the most recent MPC meeting that “further asset purchases might become warranted if the downside risks to medium-term inflation materialized.” That was the “all go” into sell mode for traders right there. Soon after in the US session, we got the FOMC decision on monetary policy, and as expected, there was no change to interest rates, growth forecasts were cut, and there are no plans for further QE (read more about it at Pip Diddy’s daily USD roundup). As I hoped, USD went into a broad based rally against the majors.

Unfortunately, I didn’t get to participate on that awesome +200 pip move as my orders to short were at 1.6300. And with the pair already hitting my profit target for the week, I have decided to close my open orders. No trade.

So, what could I have done better?

First, I think I was right to be conservative in my attitude towards this week’s major data, but I could have played it slightly different by going with a different entry plan. Instead of trying to pick the absolute top, I could have set orders throughout that potential resistance zone I marked earlier. Second, recognizing that bearish rhetoric and immediately jumping short would have been the best alternative plan in adjusting to the market conditions. It makes sense because my expectations were that the Dollar would rally for the FOMC event.

Overall, while I’m ever so slightly annoyed I missed this trade, that feeling is counter balanced with the realization that my ability to look out ahead and play out different scenarios and market behavior reactions is getting a lot better. With more years of continued practice and focus, I think I may actually get good… hehe.

That’s it for me this week folks. As always, if I spot nice intraday setups (like the Asia breakout setup on Cable yesterday) I’ll post it up on my Twitter and Facebook pages. Stay tuned, stay safe, and have a great weekend!

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Trade Idea: 2011-06-21 5:20 ET

Good morning forex friends! For my swing play of the week, I’m watching Cable as a potential reversal back into the trend is forming. Will this week’s major events get me in
and out of GBP/USD with a profit?

PCDPOD20110621.png

We have an action packed forex calendar this week for both the and UK, but the main sentiment shifters may be the FOMC rate decision and statement, and of course, the decision on the Greek Bailout.

By now, we’ve all read enough on the Greek bailout drama, but if you haven’t then check out Forexgump’s latest write-up on the EU’s sticky situation. Will austerity measures be passed resulting in Greece getting their second bailout? I’m not smart enough to answer that question, but I think when that uncertainty is finally resolved we’ll see traders quickly jump back in and give prices a direction.

As far as the FOMC statement, Forex Gump makes a case in his blog that since economic data has weakened since the last meeting, growth forecasts will be cut for 2011 and 2012. It is also expected that even with poor data and a reduced growth forecast, we probably won’t see more stimulus. Again, I’m not a smart enough man to know what the Fed will say, but I will guess that because QE2 is ending soon, any changes or surprises in policy or rhetoric will spark big moves in the financial markets.

Both of these events are potentially very big deals, which is why I’m going conservative on my entry for my swing trade this week. But my gut is saying that a Greek bailout will spark a Cable rally and then no new QE from the Fed will bring traders back to the Greenback; there’s no reason to sell the Dollar if the Fed stops printing cash like there’s no tomorrow, right? Of course, my gut could be totally wrong and y’all know I’ve been wrong many times before…

If my gut is right, here’s my technical setup on this week’s events. On the 60 minute chart above, we can see Cable retracing higher into a potential resistance zone of Fibonacci retracement levels, psychological levels, and the top of its weekly range. Also, there is divergence (higher “highs” in price, lower “highs” in stochastic) signaling that the rally may be running out of steam.

Because of the potential for a Greek bailout to spark risk taking behavior, I’ve decided to short if the top of that potential resistance zone (61% Fib, top WATR, and major psych level 1.6300) is tested. My stop will be around a quarter of the weekly average true range of 290 pips. My target will be the bottom of the weekly range. Here’s what I am going to do:

Shorting GBP/USD at 1.6300, stop at 1.6375, pt at 1.6020

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

As always, I’ll remain flexible to the changing environment. I may scale into this position if it goes my way, close out early, or adjust my targets as the week goes on and as data dictates sentiment. Of course, stay tuned for adjustments by following me on Twitter and Facebook! Good luck and good trading!

  • Maxiv

    hmmmm… ive set this one up…. see how it goes

    • pipcrawler

      Yup, that’s all we can do for now… Good luck today!

      • Maxiv

        Ok… that was a big drop!!…. what now!?… is this done…..?

  • Yousuf.

    hey do u think we still have an opportunity to short this pair on a retracement to 16080?

    which is the previous support now turned resistence?

    • pipcrawler

      I think if you’re looking for a short-term trade (3 days or less), the risk-to-reward potential isn’t that great to short there without any major catalysts and especially since it’s the end of the week.  I’ll probably wait until next week to look to short on any retracements. 

  • Yousuf.

    i stayed on the sidlines for the news today, will wait for retracment and enter short, maybe tomorrow..

  • online LLC formation

    Has read all in detail, excellent blog!
    Really good post, this will help me a lot in the future..Thanks

  • Yousuf.

    hey, i think shorting might be a bad idea, because there is a descending triangle forming on the daily chart, and there is strong support at 1.6100 handle. if i was you i would wait for the mpc meeting minutes tomorrow, and if it really is 2-0-7, that would send the gbp crashing down, and take out the stop losses around 16050, and break the 16100 support, i would short it then.

    However on the upside, if the minutes are better then expected then i would ride the news up on the break of the triangle. 

    I hope it helps ^_^

    • pipcrawler

      Thanks for sharing your observations and your ideas makes sense.  Good luck to you!