Short-term Range to Hold on GBP/JPY? – Stopped Out

Stopped Out: 2012-12-11 15:45 ET

My day trade was stopped out as we saw a broad market rally in risk thanks to a positive surprise from German investor confidence data.

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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German ZEW economic sentiment data came in very high relative to expectations (6.9 vs. -11.5 forecast), which brought in strong risk-on flows across all markets. Guppy was no exception as the pair broke above 132.50 around the time of the report.

I didn’t consider that the news would have as much affect as it did on the Pound and Yen markets, so I held onto my short. Unfortunately, the positive risk sentiment lasted throughout the entire session, taking GBP/JPY to 133.00 and my stop out level at 133.10.

Total: -60 pips/ -0.50% loss

I have to admit that one hurt a bit, especially as I thought the market would turn my way after a pair of doji’s and overbought stochastics were signaling the rally may stop-and-reverse after the European news. Of course, the markets do not move on technicals alone, and it was all about buying risk on the day.

In retrospect, the best thing to have done was to take the trade off when the pair retested my entry level at 132.50. Given the market’s sentiment at the time, there was no chance on making pips on this one and getting out at breakeven would have been a win in itself. It’s always so clear in hindsight, right? :)

Well, the week is still early and we have a major event coming our way with the FOMC monetary policy decision tomorrow. Thank goodness I kept my risk small–I live to trade another day.

I’m in “watch” mode for now as I’ll definitely be on the lookout for an opportunity to make this small loss back and then some. Thanks for checking out my blog everyone–good luck and good trading!

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Trade Idea: 2012-12-10 17:35 ET

Good evening forex friends! For this week, I spotted a range setup on GBP/JPY that makes sense given the short-term sentiment. Will sellers be drawn back into the the top of guppy’s range?

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So, I’m playing a mostly technical, range setup for a day trade, given that we don’t have a major catalysts for Tuesday. Also, with traders speculating that we may see a shift from the FOMC out of Operation Twist, I think we’ll see the range continue into the event as traders hold back from putting big bets on ahead of the event.

On the 60 minute chart of GBP/JPY above, we can see that 132.50 is testing the beginning of the top of the range from last week as stochastics show overbought conditions. I’ll short in this area, but leave a wide stop in case the market pushes all the way up to lasts week’s high around 132.90. And since it is a day trade, I’m not going for a huge gain as I’ll be targeting the area around the next major psychological handle below the current market. Here’s what I am going to do:

Short half position GBP/JPY at 132.50, stop at 133.10, max profit target at 131.90.

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 very limited max potential of 1:1 return-on-risk, but my risk is very limited because it is a short-term trade. I look to close this trade at the end of the US session tomorrow, but as always, I’ll try to remain flexible and go with whatever the market gives me. Stay tuned for updates and observations by following me on Twitter and Facebook.