Potential Swing Short on GBP/USD? – Trade Review

Trade Review: 2011-06-06 00:00

Good evening forex friends! Here is my trade review of my short Cable trade after closing my position down ahead of the Friday Non-Farm Payrolls report. Check out how my trade worked out!

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

PCDPOD20110531.review.png

We saw a surprisingly weak NFP number (only +54k vs. +165k) on Friday, which turned the market in strong USD sell mode. After finding strong support at 1.6300, as it did all week, the pair rallied higher around 150 pips.

Before the US employment data release, I decided to close down the trade (announced on my Twitter and Facebook pages) as I wanted to avoid any potential slippage from strong adverse moves. Also, if you’re strictly a technical trader, the bullish divergence signal marked on the chart above looked like a good clue to switch into bullish mode. Here’s how I made out:

1st half: +155 pips
2nd half: +170 pips
Total: +1.04% gain

Not a bad gain for the week, but how could I have done better? I’m not sure if this is a smarter decision, but I could have started with a tighter stop and larger position size. I was pretty convinced that the 1.6500 area was the top for the week, so it would have made sense to do so. Also, if I started out with a tighter stop, I could have used a scale in trade management strategy to maximize my profit potential. Instead of a 1% gain, I’d be looking at a 3% gain with these adjustments.

Overall, it looks like I may have been a bit too conservative with how convinced I was on the 1.6500 area. So, for my next few trades I’ll concentrate on weighing my stops against the potential support & resistance strength vs. potential volatility.

This week is full of mouth-watering, potentially volatile events. I’ll probably do more day trades this week rather than swing trades as sentiment may constantly shift with each news/data release–gotta love this topsy-turvy market environment, right? Stay tuned for new ideas on my Twitter and Facebook pages, and thanks for checking out my blog!

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Stop Adjustment: 2011-06-02 22:45 ET

With the end of the week and US Non-Farm Payrolls coming quick, I’ve decided to adjust the stop on my remaining position to lock in further profits.

With the market currently trading around 1.6345, I could close my remaining position down to lock in around 1% gain or I can adjust my stop to 1.6380 (the current Asia session high). This would lock in my profit at about 0.88% and leave me open for further gains if the market continues to move my way.

Lock in 1% and a good night’s sleep or lock in 0.88% and go for an epic win?? It’s a 0.12% difference and since I’m in it to win it, I’m going for the win!! Ha! So, here’s what I did:

Adjusted stop on remaining position to 1.6380. Continue to target 1.6190.

We’ll see where today’s data and price action leads us and before the end of this week’s trading session, I will close down any remaining open positions and go flat into the weekend. Be sure to check out my Twitter and Facebook pages to stay tuned for adjustments or position closing! Thanks for checking out my blog and good luck!

Trade Adjustment: 2011-06-01 22:30 ET

As expected, PMI data from Europe and US came in weaker than expected and sent the markets back into risk aversion mode. Of course, the Greenback and Swissy are the benefactors of the turn of events, and with my trade up, I have decided to lock in profits and create a risk free trade.

PCDPOD20110531.u1.png

On the chart above, we can see the spark for Cable’s downturn was weak UK CIPS Manufacturing PMI data, but the bulk of risk aversion was brought on by weak PMI in Europe, a weak US ADP Payrolls number (38k vs 175k survey), and weak US ISM Manufacturing. We’re also seeing numbers from the housing market indicating prices won’t be coming back any time soon. And the icing on the cake, another rating cut by Moody’s on Greece’s debt. Not looking like a good environment to be bullish on risk.

Now the markets are now pricing in no global growth in the coming months, and I’m guessing they may even be pricing in a double dip by how fast risk takers unloaded risk assets in today’s session. Cable fell from this week’s high around 1.6548 to its current level around 1.6345. I have a feeling we’ll see this trend continue, but I’ve decided to adjust my trade to lock in profits and create a risk free trade.

Closed half position at 1.6345. Adjust stop on remaining position to break even (1.6500). Will continue to target 1.6190.

This locks in a 0.50% even if the market returns back to 1.6500 and closes my remaining position out. But with the way market is trading, I see my 1.6190 target more likely than 1.6500 to be hit. Whatever the end result, I can sleep better at night with this trade structure.

Of course, I’ll stay on my toes and flexible if need be. So, if the conditions do not change or look to favor my bias even more (maybe with weak UK construction PMI and US NFP?), I may put that half position back on. Sign up for my Twitter and Facebook pages!

Trade Idea: 2011-05-31 5:48 ET

Good morning forex friends! I’m looking for my third win in a row with a counter-trend swing play Cable this week. Is the recent rally overbought and will sellers jump in at the major psych level?

PCDPOD20110531.png

On the four hour chart above, we can see the pair has been on a one way trip to the moon after finding support at 1.6100 last week, sparked by a strong anti-Dollar bias on weak US data. But now the market is testing a strong area of interest (1.6500) and we see technical indications of a potential reversal. Stochastics are showing overbought conditions and when compared to price action, a small divergence signal as the market makes higher “highs” while stochtastics forms a lower “high.” I’m sure other sellers are seeing this as well.

Fundamentally, the forex calendar is stacked with plenty of data from both the UK and US, and if you take a quick glance at each event, you’ll see most of them are forecasted to come in weaker than expectations. I think this will be the case for the most part as economic data has been trending weaker the further we get into the year. If this is the case, I think we’ll see another round of risk aversion, pushing traders back into the safety of US assets.

Of course, I don’t know if the upcoming events play out for sure, but I think with a new month coming quick and major data, in the form of the monthly Non-Farm Payrolls, traders will be quick to lighten up and take profits.

I will short at the MaPs level (1.6500), my stop will be just above half the weekly ATR (297 pips), and my target will be the previous support area that held last week (1.6100).

Short GBP/USD at 1.6500, stop at 1.6655, pt at 1.6190

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

So, a gutsy counter-trend call for a top on my part (kids, don’t try this at home), but this is how I see the week playing out. I may scale into this trade if it does goes my way, but I’ll keep a close eye on the market and pick my entry levels carefully before I do so. Stay tuned for updates and adjustments by following me on Twitter and Facebook! Good luck everyone!

15 comments

  1. Shawn Cannon

    I’m already on this short. Have a look on the daily. Price can’t break past the S/R zone that’s illustrated by the pin bar a week or so back. No indicator is needed to see this price is going down.

    Reply
  2. Steve44MCaUSAFX

    On the West Coast here.   12:30PM.  
    On my review, I see 1.6424 supplied support and she is riding up.
    EUR & USD News data already played out for today I figure.
    I am seeing a rise to 1.6465 or so as a 15-30 Min Resistance level.
    Then a downturn.   Setting up a SHORT entry at 1.64165
    SL @ 1.6451 (+33 pips)       Tgt @ 1.6384 (-33 pips)

    Will see how it plays out. 
    And I agree Lubor a SL of 297 or 2970 bucks is way to rich.
    Not to mention I always see they movered the Tgt later.     

    Reply
  3. Pipcrawlerpipcrawler Post author

    @b53a96d73115cae611cd506a19004b79:disqus the average weekly range is 297 pips.  My stop is 155 pips and my target is 310 pips.  2:1 potential return-on-risk.  More if I scale into a bigger position.  And if the environment changes to risk aversion, I’ll probably adjust my target for more pips… so, there’s potential to increase my return as I keep my risk very low.

    Thanks for the comments guys and good luck!

    Reply

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