Playing the Cable Range – Trade Closed

Trade Closed: 2012-04-20 5:45 ET

Even after a big surprise from an MPC member this week on quantitative easing, the 1.6000 held pretty steady as resistance–until the UK retail sales report! Check out how the last major report for the week left me with a sour start to the weekend!

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

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Market events didn’t play out in my favor this week as we saw a big surprise from the BOE‘s monetary policy meeting minutes. Adam Posen, a consistent proponent for increasing the asset purchase program, changed his mind on that position and voted for no further increases (you can read more about the event in Forexgump’s article, “If You Can’t Beat’em, Join’em!“)

This was the event I needed to get the market up to my short area, and after a bit of thought, I didn’t think it was a complete game changer because a change in stance from one voting member is not the same thing as an actual monetary policy change. Also, even the MPC admitted the UK economy is still in danger of a recession, so I thought I’d keep my position on.

The 1.6000 area did hold, especially at the high from two weeks ago, so it was looking good–until we got today’s UK data. Earlier in the session, we got a huge upside surprise to UK monthly retail sales as the actual came out at 1.8% vs expectations of 0.4%, and a
previous read of -0.8%. This of course drew in more buyers to the British Pound, and that was a wrap for my short Cable position. I was stopped out at 1.6100.

Total: -100 pips/ -1.0% loss

In retrospect, I probably should have closed soon after the Adam Posen surprise, but as I mentioned earlier, I didn’t think it was a game changer. Also, I was seeing bearish divergence, indicating buyers may be in short supply. Besides that, cutting the position short ahead would have made sense as well, but given what seems to be global data to the weak side, I thought it might go my way. Of course, the market proved me wrong today in my thought process and that’s why we practice good risk management.

Well, it wasn’t a winning week, but I’m not gonna let it get me down. The loss was controlled, I’m still positive on the year, and I know there’s always a new opportunity around the corner to make it back! Thanks for checking out my blog folks and I hope you join me next week to tackle whatever the market throws at us. Have a great weekend!

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Trade Idea: 2012-04-17 8:45 ET

Good morning forex friends! I’m going with a simple range play on Cable as the pair approaches key psychological levels and the top of its range. Will resistance hold or break?

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Keeping it simple with this week’s trade idea as I spotted a potential trade opportunity on Cable. The pair has been moving sideways between 1.5650 and 1.6000 since the beginning of February, and now it’s about to retest the top of the range. I’ll look to short there.

I like a short on this pair as a play on risk aversion, especially with the European crisis coming back into the forefront as my man Forexgump points out in his article, 3 Reasons Why Conditions in Europe Will Probably Get Worse. Now we’re seeing a bit of “risk-on” type behavior after today’s strong Spanish bond auction, so I think that may push the pair higher to my desired short levels. If this, or any other catalyst, does push it higher, here’s what I am going to do:

Short GBP/USD at 1.6000, stop at 1.6100, pt at 1.5800

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

This trade structure gives me a potential return-on-risk of about 2:1, possibly more if I decide to scale into an open position.

We still have major data this week on the Forex calendar, so I may get the volatility I need to trigger my orders. 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!

  • Necrobadger

    1.60 reached. I’m on it (18/04/2012 – 16.15 gmt +1 dst on)

  • Guss

    Do not follow anyone because there is a chance they are not all that good at trading.

  • Jānis Pusplatais

    Nice idea!
    Why didn’t you go the same with USD/CAD?

    • pipcrawler

      I do favor CAD, but I leave comdoll trades to my homegirl Happypip.  She’s been killing it on her blog (http://www.babypips.com/blogs/… so I’ll just let her tackle those markets.  That was a big move yesterday for USD/CAD and I hope you caught it!

  • Tayo Adewale

    i don’t think it will reach 1.600 b4 it surge down to 1.5825

    • pipcrawler

      You may be right my friend. But we’ll see where today’s UK data (jobs and meeting minutes) takes us.  Jobs data is projected to come in better than previous month, so I may get the spike higher I need.  Just gotta wait and see!

  • Sunshine

    Hello Dear,
    How much time will you stay in front of screen to enter at that level ? Will you put pending order ? 

    • pipcrawler

      I set limit orders to enter most of my trades. I try not to watch the market live too much because I do let the noise affect me sometimes, but if there’s a real sentiment shift then I’ll get on the charts and decide whether to close manually or not.