Nice Fib Setup on Cable Downtrend – Trade Review

Trade Review: 2011-04-19 22:35 ET

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PCDPOD20110420.png

Taking a look at the chart above, we can see that Cable responded well to my usual levels. The pair did rally enough to hit my short orders at 1.6265 and almost immediately dropped. Unfortunately, there were more buyers than sellers ready to trade at the PWL (1.6229) and that was pretty much it for Cable bears from that point on.

Sentiment was quickly reversed on positive economic data from the eurozone and better-than-expected US housing data. A strong Canadian inflation report also contributed to the US Dollar’s broad weakness.

Cable did hit the WO (1.6308), which pushed the pair back to DO (1.6265), but that broken resistance area turned into support and gave risk takers a new chance to jump in Cable long at a better price. In the end, the buyers were strong enough to push the pair past the next resistance area and stop me out at 1.6335.

Total: -70 pips/ -1.0% loss

In retrospect, the biggest change I could have made was to take the trade off–and maybe even reverse–after the surprise positive US housing data. Also, I could have been a bit more conservative and waited to short on my risk aversion bias at the WO/MaPs area.

Overall, it was a good trade plan that went with the price trend and general market sentiment, I just need to do a better of shifting my bias as quickly as the market does…at least for my day trades.

Thanks for checking out my blog. It’s a shortened holiday week, so I’ll probably be sticking to day trades. Stay tuned and thanks for checking out my blog!

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Trade Idea: 2011-04-18 23:12 ET

Good evening! Rough day for risk takers in Monday’s session as a Greek debt restructuring request and S&P rating cut for long-term US credit shook up the markets early in the shortened week. Will the new sentiment shift continue?

PCDPOD20110419.png

So, what we have is Greece requesting a debt restructure from the EU and IMF (also know as “declaring bankruptcy” to us non-financially savvy folks) and a statement from S&P saying as a result of the current political gridlock on budgetary issues, the US may be fiscally weaker than its peer “AAA” sovereigns. This could possibly lead to a credit downgrade from the rating agency within a couple of years.

Let’s remember that S&P was the agency that gave subprime mortgage-backed securities a “AAA” rating until the day they blew up. So, if they’re seeing something bad now, it must be worse than it really is, right? This did not sit well with risk takers and the market pushed assets in US Treasuries and precious metals (e.g, gold and silver).

So, the overall sentiment is definitely in favor of risk aversion, and I don’t see any upcoming events that could turn that around this week. And that’s why I’d like to go short on Cable today.

In the chart above, we can see that after the drop at the beginning of the week, strong support was found at the bottom of its weekly range (WATR) and Cable bounced higher. The rally halted at the 61% Fibonacci retracement level and has consolidated since then.

This may be another chance to play the overall downtrend this week, but with the rest of the Asia session, Europe, and US trading sessions ahead of us, I’m going to hold out for a slightly better price to jump in. My stop will be above the potential resistance area market on the chart (top DATR, PDH, MaPs) and I’ll target 1.6171 (PDL/WATR); maybe even beyond that if strong momentum returns. Here’s what I am going to do:

Short GBP/USD at 1.6265, stop at 1.6335, pt at 1.6170

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

I’m always looking to press my winners, so if my trade is triggered, I may add another position below the PWL (1.6230) if the momentum looks. This would give me a max 2:1 return-on-risk.

Let’s see what happens…stay tuned by following me on Facebook or Twitter!