Two attempts to hop on the Cable downtrend, but the bears have yet to give up some ground for an entry at a better price. So I’m adjusting my trade plan in case pullbacks do not come my way any time soon.
Short Play At Descending Highs On GBP/USD?
Last week, I spotted a great technical setup on Cable to play my fundamental short bias ahead of both the U.S. and U.K. central bank events. I looked to short at the falling highs in GBP/USD price action on a bounce, which did come during the major events, but not enough to get me in short around 1.3200 before the pair resumed it’s downtrend into the weekend.
This week, I adjusted my short entry to 1.3100 in case we saw a bounce, but the bears seem to have an iron grip on the market, pushing the pair below the 1.2900 handle and nearly testing the 1.2800 handle this afternoon.
With Brexit jitters likely to continue to drive Sterling pairs lower for the foreseeable future, it doesn’t seem likely at the moment that a pullback higher is in the cards for GBP/USD, so I decided to change my entry plan once again.
I’m going with a conservative scale in strategy, taking a nibble short at the market and placing an order higher (at the broken support/major psychological level marked on the chart above) in case the upcoming U.K. prelim GDP and U.S. CPI data sparks a bullish reaction in the pair on Friday. We could also see profit taking going into the weekend.
With this plan, if there is no pullback at least I’ll be in with some position, which I can add to if the pair goes my way. If there is a pullback, I’ll add up to my max risk tolerance, and at an area that is likely to be watched by technical traders for potential resistance behavior (around the 1.3000 handle).
My stop will be above the falling highs, which is also one weekly ATR from my first entry point, giving the trade room to breathe over the next couple of weeks. Here’s what I’m doing:
Short GBP/USD at market (1.2823) with 0.25% risk, max stop at 1.3075, max target at 1.2110
Short GBP/USD at 1.3000 with 0.25% risk, max stop at 1.3075, max target at 1.2110
With this plan, I’ll still only be risking 0.50% of my account on this position. And in the scenario where both shorts are triggered, my R:R is actually much higher than before at roughly 7:1 potential max return-on-risk at my max target because my second short position at 1.3000 will be larger because of the tighter stop.
So, it’s up to the market from here and we’ll see if the sellers still have legs to stand on after a nice move lower over the past few months. It’ll be a while until we know for sure, so stay tuned for updates and adjustments in case market themes change.
And as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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