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Trade Closed: 2011-05-06 00:55

There are times when you trade too conservatively, and there are times when you trade too aggressively. This trade was one of the latter.

AUD/JPY Daily chart

And here’s a zoomed in view:

AUD/JPY 1-hour chart

Risk aversion hit hard and hit fast yesterday, taking commodities and the Aussie down with it. It goes without saying that I was smiling from ear to ear with how smoothly things started out. I mean, I didn’t even have to wait an hour before my 2nd order to sell got triggered! I guess that’s why I was so confident in aiming for a distant profit target.

Anyway, things started getting shaky after I had opened my 2nd order. Price began consolidating just above 85.00 and seemed to have lost a bit of steam. Come to think of it, I suppose I should’ve taken this as my cue to tighten my profit target to 84.50, which was the next potential support level. After all, price had already fallen about 450 pips from the most recent high. It was highly unlikely that it would continue dropping without some sort of pullback.

But the RBA monetary statement is what really did me in. After the central bank announced that it lifted its inflation forecasts earlier today, the Aussie went flying and stopped out both my positions. My first position got off at break-even but the second one dealt me a 1% blow.

Here’s a recap of what happened:

Short AUD/JPY at 85.70, stopped out at 85.70: 0 pips/ 0%
Short AUD/JPY at 84.95, stopped out at 85.70: -70 pips / -1%
Total: -70 pips / -1% loss

What hurts most about this trade is that I could’ve actually walked away with a 2.5% win had I played it a bit more conservatively. But I’m not gonna let this stop me from taking risks with new setups. I just have to evaluate my profit targets more next time.

Just like the Lakers who are down 2 games to the Mavs, I may be down 2 trades in a row, but you can never count me out! Gotta keep our heads up high and our eyes on the prize!

Thanks for following, fellas! Hope your trades turned out better than mine. Peace!

Trade Idea: 2011-05-05 05:18

GBP/JPY 1-hour chart

With commodities sellin’ off like NBA playoff tickets on game day, we’ve been seeing AUD/JPY drop quickly down the charts. After not quite making a second attempt at the 90.00 handle, AUD/JPY has formed a double top formation and looks like it’s gonna make a clean break past the neckline support near 86.00.

For now, I think that risk aversion is slowly creeping back into the markets, which is also part of the reason why the yen has remained steady this week.

Looking ahead, we’ve got the RBA rate statement coming out tomorrow, and I’ve got a good feeling that we’ll be hearing some dovish statements from RBA Governor Glenn Stevens‘ crew. Stevens has shown some concern about the strength of the Aussie before, and seeing as how the Australian dollar was recently at all-time highs, I wouldn’t be surprised to see him take this opportunity to try and talk it down a bit.

In addition, today’s retail sales report was just as disappointing as the Lakers’ and Celtics’ performances recently. The report showed a decline in sales of 0.5%, way off the expected 0.6% increase. Look for the RBA to point at this data as a sign that they won’t be raising rates any time soon.

Right now, I’ve got orders to short AUD/JPY at 85.70 with an initial 75-pip stop. I feel that if price reaches this area, it may just continue to drop all the way down.

What I like best about this trade is that it has a very high reward-to-risk ratio. Looking at the height of the double top formation, this pair has the potential to drop a good 300 to 400 pips. I am planning to scale into this trade and add one full position every 75 pips. This means that if price drops all the way down to 82.70, I stand to gain 10 times my initial risk. 10:1?? I’ll take that any day!

Alright fellas – who’s with me? Holler at me through Twitter, Facebook, or if you have any suggestions, tips, or violent reactions to this trade idea!

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