Technical Swing on GBP/USD – Trade Closed

Trade Closed: 2013-06-03 12:30 ET

Not a great start to June as my longer-term swing short on GBP/USD was stopped out, thanks to a divergence between the UK and the US’s Manufacturing PMI 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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Because I setup on the higher four hour time frame, I left my entry order open over the weekend as I felt the setup was still valid. This morning, we saw positive manufacturing PMI data from across Europe and the UK, and I thought this was a good thing to get the market to go higher to hit my entry orders at 1.5245 and 1.5300. And possibly, the trend of positive manufacturing PMI data will continue in the US numbers.

Actually, the market didn’t get a huge boost until the US ISM Manufacturing PMI came out at 10:00 am ET, weaker-than-expected at 49.0 vs. 50.6 forecast, sparking a very large US Dollar sell off. This divergence in data–but more importantly, the contractionary number supports a “Fed taper” later rather than sooner–lead to a break of the potential resistance area up to 1.5300. My two entry orders were triggered along the way, eventually leading to being stopped out at 1.5375.

Total: -102.5/ -1.00% loss

My effort to create a longer-term swing didn’t pan out thanks to negative US data, and a big reaction to it. With data the UK looking a bit more positive, this may be a short-term pivot point for the Greenback as traders may start to take off their US Dollar longs if UK and euro zone data continues to surprise to the upside.

What I could have done differently was to take the trade/orders off as soon as the US ISM data came out, but this was supposed to be a longer-term swing so I left it on to see how the market would respond. It looks like there was lot of traders out there ready to hit the sell button.

Overall, the technical setup and initial bias was good, but as with most of my trades this year, it all comes down to adjusting better as the story quickly evolves. Right now, it’s all about what the central banks (mainly the Fed) will do with quantitative easing programs, which makes this environment more of a data driven one rather than an event driven one that we’ve seen in the recent past.

It’s gonna be tough to gauge how the markets will behave this week with so many major events and data releases coming up on the calendar, so I’ll stick to shorter-term trades for now. Thanks for checking out my blog, good luck and good trading!

Trade Idea: 2013-05-27 9:13 ET

Good morning forex friends! With the economic calendar looking a wee bit thin this week, I thought I’d play the technicals with a setup possibly forming on Cable. Can I catch the current Dollar trend at a better price?

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Over the past three weeks, we saw a strong, broad USD rally on the idea the Fed may scale back on the quantitative easing measures sometime this year. As with any strong momentum move, we may get a pullback as traders take a breather and lock in some profits. If we do get a pull back higher to the 1.5250 – 1.5300 area, which is also the 38% – 50% Fibonacci retracement area, that might be a great time for Cable bears to jump on an opportunity to play the trend at a better price. I’ll look to scale into this area at those levels, with my stop just above the 61% Fibonacci retracement level around 1.5370. My profit target will be last week’s lows just above the 1.5000 major psychological level. Here’s what I am going to do.

Sell half position GBP/USD at 1.5245, stop at 1.5375, profit target at 1.5030

Sell half position GBP/SUD at 1.5300, stop at 1.5375, profit target at 1.5030

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

With this trade structure, and if both positions are triggered, my potential return-on-risk is about 2.38:1. if I don’t get the retracement I’m looking for, I’ll look to jump in short at market, but with reduced risk.

Not only do I like this trade on the idea of the Fed scaling back bond buying operations, but recent lower-than-expected inflation and weaker retail sales supports a weaker Sterling argument. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

  • PipMeHappy

    Hi there… I support a down-trend, generally, without getting into target-speak, I see the 20MVA crossing below the 50MVA and both under the 200MVA, so I am holding on to my short (See image)…Good luck to us both!

    • pipcrawler

      Good luck to you PipMeHappy!

  • liliku

    is it safe for me to open sell 1.5104 cause i was late to know your new release?

  • liliku

    I was late . is it safe if I entry short at1.5099

  • liliku

    what time do you used to release you anlysis

    • pipcrawler

      Hey liliku…. I’ll answer all of your comments here. As far as it being “safe”, that’s really up to your own analysis and trading methods. I created a strategy for how I think the market may play out this week; I don’t know how you trade so I can’t comment.

      I usually post my analysis at the beginning of the week here in my blog, with general updates and observations posted on my Twitter and Facebook accounts. You can follow me there, but for this trade, I don’t expect many updates because this is a longer-term position.

  • PipMeHappy

    PipCrawler… we were right…GBP/USD dropped (about 70 pips) today…
    We are now at 1.5037…USD gaining ground also over EUR, and retracing its losses versus JPY… Good USD data (Consumer Confidence, etc.) this afternoon!
    Happy trading.

  • liliku

    thanks coach, with your technical and fundamental expertise, I dare to jump on seller wagon at 1.5099 and wins 38 pips now. about average true range i still beg you to give more explanation and example to make me get clear understanding about it. If it is not bothering, I hope it is like indicator lesson in school of babypips.com.

    • pipcrawler

      Coach?! No way…just another trader learning, practicing and blogging just like you… For the ATR, you can check out our forexpedia article: http://www.babypips.com/forexp

  • liliku

    where do you stay sir, so I can adjust to your time in accrdance with average true range .

  • liliku

    waiting your next post.

  • Hebert

    How can u conclude that your set up was good?? A loss is a loss. I think your problem is that you are way too bias on the USD strenght as you are still talking about the Fed intention of tapering off the buyout program .That is “old news” (almost 3 weeks old). It is the same with the cyprus issue for EUR/USD . It happened and market reacted and that is it. By the 3rd or 4th week, market would have already discounted it but yet you are betting on it for your set up.

    • pipcrawler

      Shinzo Abe was elected the Prime Minister of Japan in December 2012, in which everyone knew he would eventually set up Japan to be on an unprecedentedly massive stimulus program. 3 weeks later, the Yen sold off against the Dollar for about 1500 pips. Was it already old news then? If so, then a trader would have missed another 1400 pips over the course of the next three months.

      The Fed may wind down a stimulus program that’s been going on for years, another unprecedented event in my opinion, so at the time of the trade, I didn’t think it’s old news. And besides, it’s still in play, it’s just that the “taper” hinges on economic data rather than the initial news of it, and we got some weak US data on Monday.

      Could this trade have been done better? Sure, and I don’t judge a setup based solely on a win or loss. Of course, I hate losing, but to me, if I did my homework, created a high probability setup and limit my risk with a high potential reward, then that’s a good setup. After that, comes in the skill of adapting to whatever the market throws at you…and that’s where I still know I have a long way to go.