Pick of the Day: GBPUSD – Close Trade

Close Trade: 2010-04-16 14:25 ET

PoD Chart

Good afternoon friends! We saw quite a bit of volatility in Cable since I posted my trade idea as the pair jumped back and forth between 1.54 and 1.55 this week. With the weekend approaching fast, I have decided to close the trade to avoid weekend event risk.

Closed trade at 1.5400

Total: +50 pips/ +0.33% gain

Well, it looks like the change of heart from Greece about taking help from the EMF and IMF brought back some risk aversion and flows back into the Greenback, but it wasn’t enough to break the support area around 1.5380. I believe that risk aversion will carry onto next week, but as we saw last week with the offer of help to Greece, anything can happen over the when the market is closed. Why take the chance?

If the opportunity presents itself again, I’ll jump in this pair short, but until then it’s time to go enjoy the weekend with my small gain!!

Thanks for checking out my blog and have a great weekend everyone!

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Trade Idea: 2010-04-12 18:06 ET

PoD Chart

Good afternoon! Pretty interesting turn of events this past weekend with the support offered by the EMF/IMF to Greece! We saw currency pairs gap up and down all over the place, showing us how fun weekend event risk can be, right? With the support for Greece priced in, where will pairs like Cable head to next?

Technically, Cable has made it’s way higher after finding strong support around 1.4800 and has tested the 61% Fibonacci retracement around 1.5420. To me, I see a bearish daily candle formed at the close of today’s trade, and with stochastics showing overbought conditions on both the daily and four hour charts, I think the bulls may have run out of steam in the short term.

Fundamentally, while it’s great that Greece has the option to borrow money below the market rates now, it doesn’t mean Greece will be able to cut enough spending to get back to fiscal soundness. There’s a lot of moving parts to this story and to read more, be sure to check out Forexgump’s article, “Happily Ever After in Greece?” So, only time will tell if Greece will pull through or not, and we will just have to wait and see.

Another thing to remember is that this doesn’t help the UK or the US at all, other than bringing risk tolerance support to the Pound. How long will that story have an influence?

Besides, both countries are still facing huge budget deficits, employment and housing issues, but we’ve seen slightly improving economic data as of late. With that said, I think the British Pound is still more vulnerable with the uncertainty of the upcoming elections, the potential debt downgrade, and banking issues on the minds of traders. Plus, if we do see consumers demanding goods and spending soon, then the improvement recent data numbers won’t mean a thing. This could potentially bring on another round of risk aversion–potentially great for the Greenback and bad for the Pound.

So, I’m short bias on Cable and I look to jump in with another test of 1.5450 – 1.5500 just to be sure the Greece bailout story has played out. We have plenty of data this week to hopefully give me enough volatility to get in at a better price, and I think the direction for this pair will be dictated by the result of the this week’s US retail sales data (Wed. 1230 GMT). My stop will be the Average daily range of about 150 pips, and I will target last week’s lows around 1.5150. Here’s what I am going to do:

Short GBPUSD at 1.5450, stop at 1.5600, pt1 at 1.5300, pt2 at 1.5150

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

So, that’s a 2:1 reward-to-risk ratio and a pretty solid trade plan. Let’s see how it pans out!

Thanks for checking out my blog and please feel free to leave a comment (or two)…good luck and good trading!

  • PipWolf

    I’d have agreed with you if the resistance at the 0.500 had held because it would have been coupled with a hidden bearish divergence. However, with the news over the weekend I no longer think this setup is valid. I think the bearish candle we can see just comes from the gap being filled in, which was pretty likely to happen. I don’t think it represents the overall sentiment of the the market right now, and the guppy will actually go up from here.

    Good luck!

  • fed

    on my chart the candle doesn’t look the same on the daily. in the 1 hour setup I do see a nice IB/OB candle pattern and divergence. It has good potentials.

  • fed

    If you look at the 200 MA on the daily the price is too far away above it, looks like the price will fall at least to the 200 MA around 5250-5270. Lets see if the price will break the 200 MA from there on.

  • fed

    my mistake on my previous post, the 200 MA is below the price on the 4hr chart not on the daily, and MA 200 is above the price on the daily and shows us that this market is on a downtrend, and I think this is a good setup…… I missed the entry when I was busy with the jpy pairs.

  • PipWolf

    I’d have agreed with you if the resistance at the 0.500 had held because it would have been coupled with a hidden bearish divergence. However, with the news over the weekend I no longer think this setup is valid. I think the bearish candle we can see just comes from the gap being filled in, which was pretty likely to happen. I don’t think it represents the overall sentiment of the the market right now, and the guppy will actually go up from here.

    Good luck!

  • fed

    on my chart the candle doesn’t look the same on the daily. in the 1 hour setup I do see a nice IB/OB candle pattern and divergence. It has good potentials.

  • fed

    If you look at the 200 MA on the daily the price is too far away above it, looks like the price will fall at least to the 200 MA around 5250-5270. Lets see if the price will break the 200 MA from there on.

  • fed

    my mistake on my previous post, the 200 MA is below the price on the 4hr chart not on the daily, and MA 200 is above the price on the daily and shows us that this market is on a downtrend, and I think this is a good setup…… I missed the entry when I was busy with the jpy pairs.

  • Newbornbabytrader

    @pipcrawler: what stocastic settings are used by you.

  • MonsterTrader

    Great trade….lol I actually entered one position last night and a second this morning. Its funny how ppl can look at the same screen and make a few different observations. Check out my blog @ http://www.mtfmgmt.blogspot.com for a breakdown :)

    Lets hope it works out!

  • Newbornbabytrader

    @pipcrawler: what stocastic settings are used by you.

  • MonsterTrader

    Great trade….lol I actually entered one position last night and a second this morning. Its funny how ppl can look at the same screen and make a few different observations. Check out my blog @ http://www.mtfmgmt.blogspot.com for a breakdown :)

    Lets hope it works out!

  • Babysteps

    I’m with you
    I think this is very good call
    my positions sell 1.5480

  • Babysteps

    I’m with you
    I think this is very good call
    my positions sell 1.5480

  • Viper5

    I really don’t understand this trade. Can somebody explain it to me? I see a doji followed by 3 bullish pinbars and you see 1 bearish pinbar and you want to short? And I might add that the bearish pinbar doesn’t appear on either mt4 or oanda. If you were going to short this pair on daily, why not do it at 1.560 where it’s much closer to 200 MA and right at a resistance level? I haven’t been trading for very long, but I have been picking up on things and this just seems like an odd trade. True the stochs are overbought and it is at 62% fib, but is that your only reasons?

  • Viper5

    I also don’t understand why you say it is 2:1 risk/reward since you are risking 150 and possibly gaining 450 (3:1)

  • Viper5

    I really don’t understand this trade. Can somebody explain it to me? I see a doji followed by 3 bullish pinbars and you see 1 bearish pinbar and you want to short? And I might add that the bearish pinbar doesn’t appear on either mt4 or oanda. If you were going to short this pair on daily, why not do it at 1.560 where it’s much closer to 200 MA and right at a resistance level? I haven’t been trading for very long, but I have been picking up on things and this just seems like an odd trade. True the stochs are overbought and it is at 62% fib, but is that your only reasons?

  • Viper5

    I also don’t understand why you say it is 2:1 risk/reward since you are risking 150 and possibly gaining 450 (3:1)

  • Pipcrawler

    Thanks for the comments everyone!

    Viper5 – I don’t usually watch the 200MA so it doesn’t factor into my analysis. We all see and play the market differently and the analysis presented in my blog is how I saw it at the time. We all have our own methods and this is what makes us all different as traders.

    The second profit target is 300 pips away from entry point while my stop is 150 pips away. That’s 2 to 1 reward-to-risk if I close my full position at either point.

  • Pipcrawler

    Thanks for the comments everyone!

    Viper5 – I don’t usually watch the 200MA so it doesn’t factor into my analysis. We all see and play the market differently and the analysis presented in my blog is how I saw it at the time. We all have our own methods and this is what makes us all different as traders.

    The second profit target is 300 pips away from entry point while my stop is 150 pips away. That’s 2 to 1 reward-to-risk if I close my full position at either point.