Before you take a look at this beautiful setup, I suggest y’all check out my introductory post on the Weekly Winner to guide you on my trading framework.
June 13 to June 17, 2011: GBP/JPY Price Action Review
Once again, good ol’ risk sentiment was the main driver of last week’s price action.
GBP/JPY started the week on a solid note, as risk appetite was up and higher-yielding currencies rose across the board. However, the pair soon found strong resistance at key levels (top WATR, MaPs, and PWH) between 132.00 and 132.30. This ended up being the top for the week, and we saw a midweek reversal as poor U.K. retail sales and jobless claims data helped spark a selloff. Overall risk aversion stemming from Greek debt issues also allowed the yen to rally.
The end result? We saw GBP/JPY fall all the way back down to the bottom WATR and the PWL around 130.00, good for a 200-pip pop!
The best part about this setup was that it was very simple. You could have gone short at around 132.00 and aimed for the bottom WATR near 130.00. With a 60 pip stop, you could have caught the full 200-pip move, good for a 3.3:1 trade.
Now, if you were really patient and didn’t jump in right away, you could have waited for price to test the PWH at 132.30. Getting in at this point would have let you use a tighter stop, maximizing your reward-to-risk ratio. You could have gone with a stop of 40 pips and aimed for the PWL at 129.80. This would have let you catch 250 pips, good for a solid 6:1 reward-on-risk trade.
Looking back, this was a very easy setup, kinda like 5-foot putt for a birdie. I could have gone with a smaller position and I still would have made a decent return on the trade.
Did any of you take this trade?
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