Forex Trade Adjustment: 2014-11-12
It looks like the Bank of England gave Sterling bears what they needed in today’s inflation report. With sellers back in control and the downtrend still intact, here are some adjustments to maximize my potential gain while keeping the same max risk.
Original Trade Idea: Shorting GBP/USD Ahead of U.K. Data
It looks like the previous swing low just under 1.5800 is holding on for Cable bulls, creating the possible scenario of a bounce after such a strong down move after the dovish BOE inflation report during the morning London session. I think with the outlook of a rate hike in the U.K. pushed back even further, and the broad relative strength of the U.S. dollar, a pullback to my original entry would be a great time to add to my short position. Of course, by adding to my position, I increase my risk, which is why I’m moving my total position stop lower. Here’s what I’m doing to maximize my potential gains while keeping my risk the same:
Short another half position at 1.5850, total position stop moved to 1.5950, total position target still at 1.5650
What this adjustment essentially does is keep my total risk at 0.50% of my account, while increasing my potential reward if 1.5650 is hit from 0.50% gain to a 1.00% gain. My potential return-on-risk goes from 1:1 to 2:1, making this trade more attractive to hold on to. Even if I don’t get my second position on, it’s still a 2:1 trade now that my stop is trailed down to 1.5950.
Nothing to do now but to see if the Sterling sell off still has legs, and to see if the U.S. data coming up can provide one final boost before the weekend. Stay tuned!