Range Break and Retest on GBP/USD? – Trade Closed

Trade Closed: 2013-08-28 1:55 ET

I got the pullback I was looking for to play my idea that we’d see risk-off flows in the market thanks to geopolitical risk, but there wasn’t much direction or volatility after I was triggered. With the new European session coming up quick, it’s time to close my day trade and look for other opportunities.

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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As we can see in the chart above, the market went into snooze mode at the European session close, even with surprising US economic data (Richmond Fed 14 vs. -7 forecast, CB Consumer Confidence 81.5 vs. 79.0). The Greenback has been given support here in the Asia trading session, but since I haven’t traded geopolitical events much and we have a new European session coming up with new data, I closed out at 1.5526 to lock in profits and see if I can find a better opportunity.

Total: +24 pips/ +0.12% gain

In retrospect, I was on point with risk-off flows taking a hold of trader sentiment, but I played the wrong currency to express that opinion. It was the Yen that was the biggest benefactor as we saw a strong, broad rally in the Japanese Yen against all majors.

I’m watching the Yen now as the geopolitical risk is still in play in my opinion, but after the big rally we’ve already seen this week, I’m going to be in watch mode for a retracement or for confirmation of another strong move lower.

We have BOE Governor Carney speaking later today, as well as US pending homes sales also on the calendar to be another potential catalyst for short-term volatility. I’ll see how the market behaves before and after these events to see if any new opportunities arise. So, stay tuned for new ideas and observations by following me on Twitter and Facebook!

Thanks for checking out my blog…good luck and good trading!

Trade Idea: 2013-08-27 7:00 ET

Good morning forex friends! Just ahead of the morning European session open, we saw a burst of volatility leading to a breakout of this week’s range. Opportunity to short on a retest of broken support?

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It’s a simple day trade setup on the 15 minute chart of Cable above: range break and then sell on a retest of broken support. It’s a pretty classic setup, one that I like for just a day trade as we may see continued USD bullish movement on general risk aversion.

For weeks now, we’ve been seeing risk-aversion being played out through the weakening emerging markets, and now it may come more broadly after seeing weakening US durable goods orders yesterday and geopolitical risks. Mainly Greece’s new bailout request, Italy’s political drama thanks to Berlusconi potentially being expelled, and fresh fears from potential Western action on Syria.

So, I’m USD bullish for now on a return to risk-aversion, but I’ll only jump in if I see a pullback to the broken support area. We do have Richmond Mfg and CB Consumer confidence later, both projected to be weaker than the previous read, which could help my trade if risk-aversion flow to the Dollar is the behavior of the day. Here’s what I am going to do:

Short quarter position GBP/USD at 1.5550, stop at 1.5600, profit target at 1.5450

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

I’m only risking 0.25% on this trade, and with this trade structure, I have a potential reward-to-risk ratio of 2:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!