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Trade Idea: 2010-10-19 23:40

GBP/USD 4-hour chart

Phooey! Thanks (or should I say NO THANKS?!) to China’s SURPRISE decision to increase interest rate by 0.25%, I had to stomach another loss.

The surprise move ignited a USD rally, causing GBP/USD to fall and hit my stop loss just a few hours after I bought the pair. Gah! I guess investors bought up the USD in fear of the rate hike slowing China’s and the world’s economic recovery.

Stopped out at 1.5690: -150 pips / 1.0% loss

Oh well. I’m not going to lose any sleep over this loss. To tell you the truth, I don’t feel too bad about it. I mean, come on, there was very little I could have done to prepare for China’s move. It came out of nowhere and was totally unexpected.

Until next time, guys! This is Huck signing off!

Trade Idea: 2010-10-19 4:31

GBP/USD 1-hour chart

So I pulled up my GBP/USD 1-hour chart and guess what I saw? I caught it right as it was testing a former support level!

A couple of hours ago, price had formed a doji and was followed up by another bullish reversal candlestick. Look at that long lower shadow! Stochastic is also already screaming overselling and is pointing upwards.

It looks like price is really having a hard time crossing 1.5840. I took this as my go signal to buy GBP/USD and so I jumped in at market. Oh I hope support holds again!

I want to start this week off on the right foot so I set a wide stop for my trade just in case price moves against me before it moves in my favor. I figured 150 pips, its average daily true range for today, is enough so I set my stop loss at 1.5690, below last week’s lowest point.

Though I’m ultimately hoping price will return to 1.6100, I’m willing to take some profits off the table at 1.6000.

Fundamentally, I think trading this pair is all about picking what currency is less worse. We all know that U.K.‘s economy leaves a lot to be desired, but is it really worse off than that of the U.S.?

I really don’t think so. The U.S. Federal Reserve has said time and time again that it is prepared to inject more stimulus if the economy gets worse. Meanwhile, the Bank of England (the Fed’s counterpart) is only CONSIDERING adding expanding its asset purchase program.

As for possible event risk, I’m keeping an eye out for the U.S. building permits and housing starts report that’s coming out later. I don’t think the report will swing price strongly in one direction, but I’d rather be safe than sorry… If price becomes too volatile and breaks below 1.5800 strongly (long red candle types), I may close my trade early, cut my losses, and cry myself to sleep. Tee-hee, kidding!

Long GBP/USD 1.5840, pt1 at 1.6000, pt2 at 1.6100, sl at 1.5690.

Cross your fingers for me and don’t forget to follow this trade on, guys! Oh, and check out the new School of Pipsology, too!

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