Trade Closed: 2012-04-03 22:00 ET
Good evening Forex friends! It looks like that bearish divergence signal was good one and both of my positions have triggered. Normally, I’d like let the market do its thing from this point on, but today’s FOMC minutes changed the game.
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
In Tuesday’s afternoon US session, the FOMC meeting minutes showed that there will be no additional stimulus. This was a surprise to most of the market, and just like that, we saw short Dollar positions come off, along with some risk sentiment off the table.
In terms of my trade, my first short position was triggered before the FOMC meeting minutes was released, while the second was triggered in the strong sell off afterwards.l I decided to watch 1.5900, but after seeing it is unlikely to hold, I decided to close my long position manually at 1.5886.
1st half: -114 pips
2nd half: -14 pips
Total: -64 pips/ -0.56% loss
In retrospect, there were a few things I could have done differently.
First, was to take my original trade idea of shorting based on the divergence at a major psychological area (1.6000). The reason I didn’t was because traders were pricing in QE3, so I was USD bear biased. Second, I knew the FOMC meeting minutes were coming up, but since Bernanke did give a few speeches in recent weeks, I didn’t think there would be any surprises to this month’s FOMC statement. In the future, I’ll take into consideration that the FOMC statement could surprise.
Overall, I’m slightly irked that I knew I should’ve gone with divergence short, but I’m happy that I was able to say, “things have changed, cut the trade now!” As they say, take that small hit and live to trade another day.
That’s probably going to be my only trade idea of the week as Thursday and Friday look to be gambles with the major events coming up on the Forex calendar. But stay tuned as I’ll have my first quarter review up for you guys to check out.
If you do decide to trade, remember to always think “risk first” and preserve capital. Good luck and good trading!
Trade Idea: 2012-04-03 5:50 ET
Cable has been range bound between 1.5700 – 1.6000 for the last few months, but it looks like the pair may be ready to break out of its shell. This week the market broke above strong resistance around the 1.5970 area, signaling that there may be Cable bulls ready to push the pair higher. Since the pair has been steadily grinding higher from the bottom of the range hit three weeks ago, I think this trend may be strong enough to continue. Of course, to play it safe, I’m going to wait for a possible pullback (as signaled by the divergence) into the range drawn in the chart above before going long; you never know if a break could be a fake out.
Fundamentally, it’s a tricky time to pick a direction. The US is perceived to be getting better while Europe gets back into crisis mode (thanks to Spain), and as China’s growth decelerates. Also, given that we have major economic events (most notably UK interest rate statement and US employment report), risk sentiment and price action may be choppy.
So, given the current trend & potential choppiness thanks to fundies, buying on a pull back makes sense to me. I will scale into a long position in the buy area marked above, my stop will be half of the weekly ATR, and my target will be the next potential resistance area above the current consolidation. Here’s what I am going to do:
If both positions are triggered, this trade structure gives me a potential return-on-risk of about 1.3:1. With all kinds of major data this week, it might get crazy! So as always, if the market environment shifts on a new catalyst, I’ll be sure to adjust my open orders or open position quickly. Be sure to follow me on Twitter and Facebook for updates. Thanks for checking out my blog…good luck and good trading!