Swing Short to Jump in the GBP/USD Downtrend – Closed Trade

Closed Trade: 2012-06-07 08:43 ET

Good morning! The BOE’S Monetary Policy committee came out as expected with no changes to the interest rate or their asset purchase program. But it was the surprise rate cut from China that kick started the markets into risk-on mode, and me into exiting my trade early.

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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While I got both of the entries I planned for, the surprise news that China cut its interest rates by 25 basis points to 6.31% (the first time in 4 years) is a game changer to sentiment for the short-term. That news, coupled with the fact Fed Chairman will be testifying in a few hours, most likely to stay dovish on the economy, may spark traders to continue to price in another round of QE from the Fed; definitely not good for the Greenback!

So, I decided to manually close my position at 1.5587 as it seems that sentiment is shifting towards risk taking across all markets.

1st Half: -142 pips
2nd Half: -42 pips
Total: -92 pips/ -0.57% loss

Overall, I don’t think there was anything I could have done differently. I went with the trend on a nice technical setup, and the market throws a curve ball mid-trade. Sometimes, that’s just the way it goes and you just have to adjust on the fly; gotta love this game!

I’m gonna sit back from any new positions for now, but I’ll definitely keep a close eye on the market to see how this China news and the Bernanke testimony plays out later. Stay tuned for my observations and new ideas by following me on Twitter and Facebook. Thanks for checking out my blog…good luck and good trading!

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Trade Idea: 2012-06-06 05:46 ET

Good morning forex friends! Like most of the majors, Cable has seen some serious downside action thanks to risk aversion and USD bullishness on the Euro crisis and global slowdown fears. This week, I look to play that sentiment on that pullback higher from last week’s lows.

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My swing play for the week is the usual, super simple, trend play on Cable by entering on a Fibonacci pullback; like Dr. Pipslow says to me all the time, “keep it simple stupid.” The trend is your friend (until it isn’t), so I’m going to short by scaling in between current market prices and the 61% Fibonacci retracement level. This should give me an average entry price of about 1.5495, and for my stop I’ll use a conservative 160 pip stop (about 2/3 of the weekly ATR) to give the trade room to breath during the BOE’s Monetary Policy decision this week. My target will be the previous week lows. Here’s what I am going to do:

Short half position of GBP/USD at market (1.5445), stop at 1.5655, profit target at 1.5270

Short half position of GBP/USD at 1.5545, stop at 1.5655, profit target at 1.5270

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

If both positions are entered, this trade structure gives me a potential return-on-risk of about 1.4:1. Of course, with so many different issues around the globe, sentiment can shift on a dime, so be sure to follow our Forex calendar for important upcoming events on both currencies, especially the MPC’s rate decision this this Thursday. Expectations for this event are for the MPC to continue to hold rates and stimulus decisions, as well as wait-and-see the effects of the previous asset purchases, so I don’t expect a huge reaction.

If events unfold in an unexpected manner, be sure to follow me on Twitter and Facebook for orders/position adjustments.

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

  • Tnose

    its still climbing. now its around 1.5560. The 61.8 Fibo is broken. Let’s hope its just for a short time. I’ve got my s/l on 1.5600. 

  • Topdogmutly

    There was a trend reversal on the daily chart, the pair was headed up and the next stop was 1.5600 or 1.5800 on the 50% Fibo.

  • antiguilty

    It’s still climbing up and down around 1.5480 for the past 12 hours…

    • pipcrawler

      Yeah, I’m thinking traders are holding off on putting up new positions until after the MPC rate decision later in the session. 

  • PipGwapo

    This is a sweet setup! It also matches the downward trendline in 4HR chart.

    • pipcrawler

      Thanks!  But let’s also remember that even “sweet” setups get blown out sometimes.  Gotta manage risk well!