Swing Short on GBP/USD Retracement? – Trade Closed

Trade Closed: 2013-02-14 4:00 ET

It looks like it was a one-way road for Cable as the pair continued its decent to 1.55 without the pullback I was hoping for to add to my position. With a major area of interest being tested and the G20 summit weekend coming quick, it’s time to call this swing trade quits.

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

GBP/USD Trade Review

The chart above pretty much says it all as it looks like there was no fade retracement on that GBP/USD selloff after the BOE inflation report. My second half position was closed with limit orders at 1.5505 as the market made its way to 1.55 at the open of the European trading session. As I mentioned above, the weekend is coming up quick and we have the G20 summit on tap to possibly take the market who-knows-where when the market opens up on Monday. Rather than take on event risk, I’ve decided to completely close this idea down by closing my final open orders to short at 1.5630.

1st half: +110 pips
2nd half: +175 pips
Total: +142.5 pips (avg pos.)/ +0.75% total gain

Looking back, it looks like I got super lucky with my entry as the market turned right at the 38% Fib marked earlier. It’s also lucky that the market dropped quickly after the BOE inflation report, but that was already expected. The only real question for this trade reflection is, “was it the right move to close half and adjust the way I did?”

Of course, I would have made more had I not closed half and let it ride, but looking at how moves in Cable have been faded recently, I think I made a good decision. My adjustment locked in profits and created a trade that gave me peace of mind and the potential for extra profits. That’s a good trade-off to me. But I’m open to ideas, so if you think I could have played it differently, please don’t hesitate to leave your thoughts below.

Well, I think I’ll take the rest of this day off to relax and watch the markets. This 1.5500 area might make for an interesting day trade, so I’ll keep my eyes on it until the weekend to see if I can find a good day trade setup before the weekend.

Thanks for reading my blog…good luck and good trading!

Trade Adjustment: 2013-02-13 8:27 ET

Good morning! Cable pulled back as I hoped and it looks like Cable bears jumped in at the previous area of interest around 1.5680. Thanks to today’s BOE inflation report, I got the catalyst to propel the trade into profit. Time to adjust!

pcpod.20130212.update.png

The inflation report came out as expected with the BOE stating consumer prices will remain above its 2% targets for the next 2 years. They are willing to add further stimulus, but they did state that there are “limits” to what they can achieve. Basically, it’s going to be a tough road ahead for the UK, which may lead to more selling in the short-to-medium term.

As I mentioned on my Twitter and Facebook pages, I took off half of my position at 1.5570 and adjusted my stop on my remaining position to 1.5650. This locked it 0.29% on the closed position and 0.07% on the open second position.

I plan on letting this trade ride as sentiment will probably remain weak on the pound, but if we do get a retracement to the previous week low at 1.5630 (blue line on the chart), I will re-enter back half of my position. The total position stop will now be 1.5650 and my max target will remain at 1.5505.

With this trade structure, if I am stopped out of the entire position at 1.5650, my total profit will be a 0.31% gain, and my max profit will be about a 1.07% gain:

1st half position (closed): 0.29% gain
2nd half position (now open): 0.46% gain
3rd half position (sell at 1.5630): 0.32% gain

Yup, it’s a risk-free trade and I increased my reward-to-risk ratio from 1.84:1 to 2.14:1. Depending on how the market plays out (weak UK retail sales and general risk-off sentiment increases), I may add more, as well as trail my stop and profit target to increase my max reward.

Stay tuned by following me on Twitter and Facebook. Good luck and good trading!

Trade Idea: 2013-02-12 8:12 ET

Good morning forex friends! Despite the spike up at the end of last week that took my outta my day trade, the market proved to be short biased with an early sell off in Cable this week. I’m still short biased if we get a pullback higher–reversal at the Fib levels?

pcpod.20130212.png

This week should prove to be a tough one to trade Cable as we have a slew of UK events to shake things up in the pair. What will make it tough is the Bank of England (BOE) inflation report this week that is expected to show that inflation will remain above the 2% inflation target until 2015. High inflation tends to spark a tightening policy from central banks, but with sentiment on the UK’s outlook looking sour, the market is also expecting dovish comments from Governor King. It’s a tough spot to be in for the BOE with high inflation in a weak economy, so traders may pay extra attention to this report and react big time to any surprises from the statement.

We also have retail sales from both the UK and US this week, with the UK disappointing the markets in its last three releases and the US forecasted to come in lower than the previous read. That data is not looking good for risk-on sentiment, which makes shorting the pair a sensible way to go once again.

With such a big drop to start the week (probably pricing in the upcoming inflation report), I’m looking for a pullback before jumping in. The Fibonacci tool shows that the 38% and 50% levels line up well with the MaPs level 1.5700. I’ll look to short there. My stop will be 1/2 the average weekly volatility, which puts it above the 61% Fib retracement area and previous areas of interest. Here’s what I am going to do:

Short half position GBP/USD at 1.5680, stop at 1.5775, max profit target at 1.5505

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

I’m risking 0.50% of my account with a potential return-to-risk ratio of 1.84:1. Of course, the market can change its mind on a dime, so if the story changes I’ll be sure to adapt quickly. Stay tuned for updates by following me on Twitter and Facebook. Thanks for checking out my blog…good luck and good trading!

  • Bijoymj

    What is your opinion about the symmetrical triangle in the monthly chart which is still in 700 pip range ?

    • pipcrawler

      I’m not a position trader and I don’t usually look at monthly charts, but that looks symmetrical trianglish to me too 🙂 Looks like a great consolidation break setup soon on the pair. Good luck!

  • Vincenzo

    Congratulations! You have focused the right retracement and the right entry point. Thank you for your hints. Bye

    • pipcrawler

      Thanks…I get lucky every once in a while! The challenge now is how to manage this position?

  • irfan hashim

    can you please demonstrat what do you mean by half position and full position…