Swing Short on GBP/JPY? – Trade Closed

Trade Closed: 2013-04-18 5:45 ET

Don’t you hate it when you’re both right and wrong about a trade? That was essentially the case as my directional bias and UK data expectations were negated by a misadjusted stop and a lot of volatility.

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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This trade is probably one of the more frustrating ones I’ve had in a while as I feel my directional bias and expectations of what we would see from UK jobs data was on the money, but I just didn’t execute my stop adjustment properly. Here’s how it all played out…

The market did hold at the 50% Fibonacci and major psychological area of 150.00 for a bit after I entered, but it was expectations that the G-20 wouldn’t comment on the Bank of Japan’s newest monetary policy changes that pushed the Yen lower against most of the majors. I was nearly stopped out as the market tested the 151.00 area, but it never got any higher than 151.20ish. This was the 61% retracement area, so it looks like guppy bears decided to take control there.

As the market expected–and why I was in the trade–UK jobs data came in weaker than expected (unemployment rate ticked 0.1% higher to 7.9%) and wages were weaker than expected. GBP pairs fell on the news, and when paired with broad risk aversion through the European/US overlap, GBP/JPY fell all the way to just above 148.00.

I added to my position at 149.00 (average entry price now 149.47), and adjusted my total position stop to 150.00. Unfortunately for my trade, the pair rallied almost 200 pips higher during the afternoon US session, all the way into the Asia session and stopped me out at 150.00.

Total: – 53 pips/ -0.39% loss

So, the list of things I could have done differently on this one is long.

  1. Waited or entered another position at 151.00. But I thought my 150.00 entry was sound and my wide stop was correct. Plus I don’t usually add to losing positions.
  2. Took some profit off the table as the market approached 148.00. But since I was already up around 200 pips, and in the afternoon US session, I figured there wouldn’t be a strong rally higher. I stepped away from the market for a while.
  3. Closed my first position at the start of Asia to lock in some profits. I had a chance to get out of that half with 100+ gain.
  4. After a 300 pip drop from 151.00 to around 148.00, I could have adjusted my stop to 149.00. No new position and continue to go for 147.00.
  5. Adjusted my stop too tightly. The pair averages over 200+ pip moves a day.

Overall, a lot of those adjustments weren’t made because I was going for a big win–over 3:1 return-on-risk–and I thought UK retail sales would disappoint as well. So I thought holding it was worth it, especially since I reduced my risk to under 0.40%.

Am I sad that I lost? Nah, but it’s a little annoying to see your trade was up 200 pips and then you end up with a loss. I guess I can take comfort in the fact that I got to chat with other traders in the comment section below that took similar setups and made out pretty well for the week. Congrats guys!

As I scan the forex calendar, I think we won’t see big moves, especially ahead of the G20 meetings this week. You never know what may come out of it, so I’ll definitely stay away until Monday or Tuesday to see what comes out of it, if anything at all.

That’s if for me for now. Thanks for checking out my blog…good luck and good trading!

Trade Idea: 2013-04-16 10:25 ET

Good morning forex friends! This week I’m playing the strong downtrend momentum on Guppy. Will the market see the Fibonacci setup as an opportunity to short?

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Technically, the chart setup is pretty text book as the Fibonacci retracement area lines up with a major psychological price area: 150.00. The stochastic indicator shows that the market may be overbought in the short term and poised for a reversal.

Fundamentally, we saw a strong rally in the Yen over the past session, most likely due to a liquidation of the Yen carry trade. Risk-off sentiment hit the markets big thanks to weak Chinese data and the story of Cyprus needing another 6B euros. Traders all over the globe were exiting positions in riskier, or higher-yielding assets (like gold, commodities and equities) and buying back the Yen and other Japanese assets used to fund their trades. I don’t know if the risk aversion move is over, but I like the odds of a swing lower with UK jobs and retail sales data up this week. Global economic data in these areas have been coming in weaker, and so the odds are that we may see this week’s reports from the UK disappoint expectations as well.

So, I shorted at market with my stop a bit above the next major psychological level, and my profit target around recent swing lows. Here’s what I did:

Shorted half position GBP/JPY at market (149.94), stop at 151.30, max profit target at 147.00

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 0.50% of my account on this trade, and with this trade structure, my potential reward-to-risk is 2.16:1. Of course, Of course, I’ll look to add to my position if it goes my way, and if the story changes then I’ll adjust my position quickly. Stay tuned to my market thoughts and adjustments by following me on Twitter and Facebook.

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

  • Jolcia

    May the pips be with us ;-)))

    • pipcrawler

      It looked good for a moment and then came in the buyers! It’s testing 151.00 and the 61% Fib on the chart. Let’s keep them stops on and see what happens.

  • Noshtrade

    Fantastic, we are both agreeing with this trade. I really like the look of this it, both fundamentally and technically.

    • pipcrawler

      Sometimes the markets trade on logic… and sometimes they don’t. haha let’s see where goes next!

  • Jeremie21

    I really don’t understand why you would want to short this? Long term trends doesn’t just change overnight.. it takes weeks or even months. Since November the most money is made to the upside not down. Bad trade.

    • pipcrawler

      Hmmmm….well, my reasoning is all up above in the post. I agree with you that long term trends don’t change overnight, but then again, this isn’t a long term trade. The idea is to play the downward momentum and UK events this week…nothing beyond that. That’s why I keep my risk very small. For me, a win or a loss doesn’t define whether a trade is good or bad, it’s whether or not the homework was done and risk was managed properly. Good trading practices leads to surviving and a better chance for a long career; bad trading practices leads to a blown out account.

      • Jeremie21

        Your reasoning means nothing against a long term bullish trend, thats why your trade idea is not a good trade. It’s a bad trading example to those who’s trying to learn on this site, its very misleading and risky. I don’t know about you, but I trade to win everything else is a herd mentality.

        • pipcrawler

          Thanks for your opinions, I respect and appreciate any feedback. I’m not sure what you mean by “misleading and risky” as with any of the trades that I do, I share the idea with supporting thoughts. Also, a risk and trade management plan is laid out. And maximum risk is limited to a very small percentage of my account (usually half of 1%). I’m here to share good trading practices and maybe every once in a while I’ll have a good idea or two; a reader can take what works for them and leave the rest. If they take nothing, then that’s fine by me.

          I trade to win also, but I also understand the reality of market speculation is that you can’t win every trade no matter how good of an idea you have, so I don’t take big risk per trade.

          But you sound like a talented trader Jeremie21 and I’m always looking to learn something new. May I ask where we can see your trading journal and extensive history of trades, to learn from what you do?

        • Caleb

          Jeremie21- as I’m sure you know, every trade is relative to its time frame. this obviously was not a multi-week trade so referring to the long term weekly trend has less significance for a trade that might be open 3-5 days at most.

          Either way, Pipcrawler nailed it with the risk management comment- any experienced trader knows that winning means nothing if you have no control over your risk. Successful trading is sustainable trading.

  • Bijoymj

    Thanks to UK Data. Price climbed up to 151.20 candle (Just 10 pips to the stop loss) and reversed. Currently price is up by 50 pips. Moving SL to BE. Fantastic catch, Pipcrawler.

    • Bijoymj

      Closed my position @ 148.90 gaining 100 pips. Escaping before canadian data release.

      • pipcrawler

        I’ve got my stops up so I’m going to hold on for now. Nice job Bijoymj!

        • Bijoymj

          Again Shorted at 149.20. Stop @ 149.60. Testing the Luck

          • Bijoymj

            This second trade was closed for +20 pips by hitting moved SL. Once the trade was up by more than 100 pips. No problem: 100+20 = 120 cool pips. Thanks to Pipcrawler

          • pipcrawler

            Please don’t thank me. All I am doing is share an idea and a process. That’s only a part of trading. Execution is key and it looks like you did well on this one. Congrats!

  • liliku

    After 24 hour of waiting and – 150 pips I got what I wait for. A reversal is coming. now My trade become + 205 pip. I just set sl and 151.30 become 148.10 and erase my profit target to get maximum profit. is it the last trde for this week ? Thanks soooooooooooooooooooooooooooooooooooooo much.

    • pipcrawler

      Congrats! Thanks for checking out my blog!

  • dan

    looks like you’re placing your fib wrong. instead of using the high from april 11 to the low of april 15, you need to place it at the low of the low of april 3rd to the high of april 11. these levels paint a much different and clearer picture to the movement of the yen.

    • pipcrawler

      My comments will be similar to the ones given to jeremie below. The idea of this trade is a short-term swing to express my views on upcoming weak UK economic data and the recent momentum in favor of risk aversion. It’s a completely different trade idea, and if I wanted to play the longer term trend in the Yen pairs, then I would have placed my Fibs as you suggested, if I wanted to play my long term Yen short bias on GBP/JPY (which I wouldn’t).

      There are many ways to play the market and extract pips. Don’t get stuck with one time frame and/or trading method. Market behavior and market themes change. Be open, flexible and prepared to manage risk.

  • liliku

    when will you post your trade idea? How many days will you let your position open, when the market is again your trade?

    • pipcrawler

      Hey liliku. My trade is closed and I just posted my review above. Check it out.

  • Bijoymj

    It is sad to see that, you ended up with a loss after being up by 200 pips. As posted earlier, I managed to catch 120 pips from the idea shared by you. I think, it was better to lock at least 100 pips at the moment you where up by 200 pips. Anyhow, it was a nice idea and your anticipation on UK data was excellent. There will be more better trades, tomorrow. If have time, please see this trade idea and comment. http://forums.babypips.com/tra

    • pipcrawler

      haha Thanks for the thoughts Bijoy. Losing trades don’t bother me much anymore as I’ve accepted it as a part of the business and I know I can learn from each one.

      Nice work that you put into that thread in the forums. My only comment is that I would consider not putting stops right at support levels as you did on your 4 hour chart. Sometimes the market will wiggle and consolidate around those areas if retested. Timing the markets and calling support/resistance levels perfectly is nearly impossible, so give yourself a little bit of breathing room for your thesis to be right (as I did with my GBP/JPY trade above). Good luck Bijoy!

  • Michele Maria Lamberti

    Uuuuuh, I’ve had the same identical trade on GBP/NZD, with the same identical loss!
    How frustrating!!

  • SDFX

    You must remember that the reason you lost this trade wasn’t because of the pound, it was because of the yen. There is no mathematical way that the yen crosses can go down other than on a short term pullback which we have just experienced. The money supply is being increased its very simple. The movement we saw from 10 trillion yen injected priced itself in, but we absolutely haven’t even come close to pricing in the some 7+ trillion per month that we just began seeing on the balance sheet. Even if we see positive Japanese data every print until year end, it will still devalue. The day after writing this you it printed 152.50 anyway. I took over 1000pips on Friday with 280 from GBPJPY alone. Your UK analytics are correct but you’ve chosen the wrong venue. My advice would be to play gbp/usd or gbp/aud depending on risk on/off sentiment.