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Trade Closed: 2012-09-27 22:35

GBP/JPY 1-hour Chart

Is it just me or is that the smell of risk appetite I sense in the markets right now?

We saw some risk taking take place yesterday, as higher-yielding currencies generally held ground thanks to a positive reaction to the Spanish government’s austerity plans. Rather than relying on higher taxes, the proposals center around cutting back on government spending but without scrimping on pensions and grants.

Based on the structure of their budget plan, it seems to me that the Spanish government may just be prepping the markets for a potential bailout!

In any case, this may have shifted risk appetite in favor of currencies like the euro and pound, which got me thinking about my short GBP/JPY position.

The second issue that I was concerned about was that, as some of you have pointed out, price bounced right off the 125.50 MiPs. Scrolling back through my charts, you can see that this was actually a major area of interest in the past. With Guppy finding some support at that level, it’s very possible that we could see the bulls come back to take control.

Lastly, I’m also wary that not only are we approaching the weekend, but the month-end and quarter-end as well. We normally see strong moves on days like today, as traders close out their positions for bookkeeping or profit-taking purposes. This is also normally followed by huge gaps over the weekend.

That said, I didn’t want to expose myself to any wild moves, so I decided to just close out my trade while price was still consolidating around my entry point at 126.00.

Closed GBP/JPY at 125.99: +1 pip / +0.0%

So no harm done on this trade, at least I got out unscathed. If price does continue to fall, that’s just something I’ll have to live with, but I’m confident I’m making the right decision to sit out.

Thanks to all of you who commented and shared your thoughts below, specifically on that area of interest at 125.50. Hope y’all have a great weekend! Peace out!

Trade Idea: 2012-09-26 03:35

GBP/JPY 1-hour Chart

Funny how this trade came about.

Yesterday, I was contemplating buying this pair as it approached 126.00. Not only was this a former resistance level and a major psychological handle, it was also a former support and resistance zone, so I had a good feeling that we’d see some sort of reaction around this area again.

But I kept my finger off the trigger because I noticed two things:

  1. The pair had formed lower highs and lower lows, indicating that the trend favors further selling, and
  2. The tides of risk sentiment seem to be turning against the pound and in favor of the yen.

True enough, the pair managed to trade lower overnight, breaking through 126.00 in the process. Phew! Dodged a bullet there!

But now that the pair is trading below this significant level, I have a chance to jump aboard the sellers’ bandwagon and load up on a short position. In the event that price retraces to 126.00 from below, I’m selling this sucker.

Here’s my game plan:

Sell at 126.00, stop loss at 126.85, profit target at 124.75.

I’m setting my stop loss above the WO and the previous swing high, which I think gives the pair plenty of room to breathe in case the market decides to pull back above 126.00. As for my profit target, I’m gonna be a bit conservative and aim for 124.75, since there seems to have been interest there in the past.

All in all, this makes for a return on risk of almost 1.5:1. As usual, I’m only risking 0.50% of my account.

What do you guys think? How would you guys trade this pair? Throw me your thoughts and suggestions below!

Risk Disclosure
Q2 2012 Trading Performance Review
Weekly Watch: September 24 to 28, 2012
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