Trade Closed: 2010-09-23 1:57 pm ET
Even though the market was expecting the Fed to talk up some QE action, Cable still got a boost after their statement confirming that they are open monetary easing. This brought on a shift back to USD selling
With the Fed showing concerns of a weakening recovery, I figured we would get more risk aversion. Also, a similar statement from the Bank of England from their Sept 9 meeting and weak UK housing data pushed the pair back lower, so I held onto the trade. Unfortunately, this QE talk means more risk tolerance to traders as interest rates remains low for who knows how long.
Today, we saw choppy price action, but there were enough buyers to push Cable up to my stop out level at 1.5735.
Total: -135 pips/ -1.0%
In retrospect, I misjudged market sentiment and could have closed the trade much earlier, but I tried waiting to see if I could get out at breakeven. Unfortunately, the closest the market got today was 1.5615.
The market continues to be choppy, even with traders back from vacation. There seems to be a strong trend higher forming on EURUSD, so I will keep an eye on that pair for an opportunity to jump in on the long side. Stay tuned!
Trade Idea: 2010-09-20 6:48 pm ET
Cable weakness was strong enough today break a significant support and resistance level. Is this break for real or just another fakeout?
The area around 1.5575 seems to be a significant area of interest over the past month as the market pivoted back and forth around it. Today’s Cable weakness sparked by weaker than previous month Rightmove House Prices in the UK brought on enough sellers to break that area convincingly. Will it continue lower?
As always, who knows where the markets will go? No one of course, but trading isn’t about predicting the future–our job is to find high probability setups and good risk-to-reward trades.
Because of the strong move lower, the pair will more likely continue lower. With this outlook, I’ve decided to short but after a move like this I expect it to retrace and consolidate. I’ll short if the pair retraces to get in at a better price and because round numbers like 1.5600 tend to collect a lot of orders, I’ll short there. I will use the average daily volatility of about 135 pips as my stop. With the Fed interest rate decision tomorrow, this wide stop should give my trade a ton of breathing room to be wrong before I’m right. Lastly, I will target the previous swing low around 1.5300 as my profit target. This gives me a 2:1 reward-to-risk ratio. Here’s what I am going to do:
Short GBPUSD at 1.5600, stop at 1.5735, pt1 at 1.5465, pt2 at 1.5330
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.
Again, the Fed statement is a big deal, so I may adjust orders or my trade if it’s open ahead of time. Stay tuned!