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Trade Close: 2010-03-12 14:55 EST

PoD Chart

Good afternoon! What started out as a great longer term trade for me turned into a short term bust as Cable found support mid-week and closed out strong. See how it panned out!

Taking a look at price action above, we can see that my trade was triggered at the open of the week and as I had hoped, the 1.5180 are held as resistance and brought in sellers to push the pair back down. I liked the momentum of the move, so I added half of my initial position at 1.5000 to increase my potential profit and adjusted my stop to 1.5180 to reduce my overall risk.

Unfortunately, 1.4900 was the bottom for the week and buyers came back, especially after positive UK housing reports and various other data signaling an improvement in the global economy. Plus, today’s announcement of Janet Yellen as vice chairman of the central bank in Washington was the most recent Dollar killer. As the charts show, there was enough buyers to push the pair all the way back up 1.5180, stopping me out at a small loss.

1st half: +00 pips
2nd half: +00 pips
3rd half: -180 pips
Total: -0.50% loss

Overall, I’m not too disappointed in this trade. The reward-to-risk was great and the plan was sound, so it was a good trade. Should I have take some off the table to lock in profits? If this was a swing, then yes, but I planned on holding it for a while. As we can see plans changed.

I’m still bearish on this pair, but we may see some range bound action for a while 1.4800 – 1.5200. I will continue to watch the pair from here and see if this area around 1.5200 holds. I just may re-enter…we’ll see. Until then, thanks for checking out my blog. Stay tuned and have a great weekend!

Trade Adjustment: 2010-03-09 21:44 EST

I have added half of my initial position at 1.5000 and adjusted my stop on my total position to 1.5180.

I now have zero risk on my initial positions and 0.50% risk on my half position. Essentially, I have reduced my overall risk and increased my potential profit…pretty sweet, huh?

I will continue to hold onto my short position on Cable as there have been no major developments from the US or the UK to change sentiment on the pair. Let’s see where the market take GBPUSD, and if it takes it to 1.4820, I will add another half position there and adjust my stop on the total new position to 1.5000.

Thanks for checking out my blog, stay tuned, and good luck!

Trade Update: 2010-03-08 18:00 EST

Good evening friends and welcome to another great week in the world of Forex! I just wanted to do a quick update on this trade.

At the open of this week’s trading session, the pair did make it’s way up to my entry level of 1.5180. Actually, the pair did make a high just under 1.5200 during the European trading session before dropping lower throughout the US trading session to its current market price around 1.5050–currently a 130 pip profit.

Again, this is a longer term position that I will hold probably into May. I will continue to hold this position and if the market does reach 1.5000, I will watch how it tests that psychological level and possibly add more to my position and adjust my stop.

For this week, I don’t expect big moves as the Forex calender is light on major economic events. Of course, this doesn’t mean I will let my guard down as market volatility can rear its head at anytime, but for now I see rangebound movement until Wednesday or Thursday at the earliest.

That’s it for now on this trade, but I do have a potential trade idea on USDJPY in the works for a trade this week. Stay tuned!

Trade Idea: 2010-03-03 16:42 EST

PoD Chart

Konnichi Wa Forex friends! So, I couldn’t catch the last Cable drop in my last blog post, but various news of a positive nature has sparked broad US Dollar selling and propped up Cable today. A new short opportunity on the British Pound heading my way??

Technically, I have the four hour chart up and we can see Cable has been sliding lower and lower for quite some time. Selling the rallies has worked out well on this pair so far, so why not try again? I’ve got a simple fibonacci retracement setup and I have highlighted the 38% – 61% retracement area as a potential sell area. The stochastics indicator is slowly creeping higher and higher, indicating this retracement may be losing steam.

Fundamentally, we’ve all read about the issues hurting the Pound, probably best said by my man Forexgump in his blog, “10 Things I Hate About the Pound” back in mid-February. To sum it up, political uncertainty, potential stagflation, and record deficits are amongst the issues that do not appear to have a solution anytime soon. This is not to say that the US does not have a lot of the same problems, and it does, it just has the unfair advantage of being the world’s reserve currency. For now, it seems traders do not have many choices besides the Dollar to park their cash when selling out of the British Pound.

So, what’s next on the Forex calendar? Well, we have potential market movers in the MPC interest rate decision Thursday morning and on Friday, the monthly economic monster known as US Non-Farm Payroll. Expectations for the UK interest rate decision is to keep overnight rates at 0.50%, but the following statement may just have as much impact on the markets. As for the US jobs data, trying to guess the headline number and the following market reaction has always been a crap shoot, and with revisions to previous months numbers, it has been especially tough to have an idea on how traders react….but let me take a shot in the dark with a guess…

Based on today’s positive ISM Non-Manufacturing numbers and ADP data, I think the headline number will come out better than expectations, causing a spike higher in risk, but a potential downward revision in January’s numbers could bring that initial reaction back to earth. Regardless if we see jobs gained or lost, we might see the unemployment rate tick lower as unemployment benefits run out for many, leaving them uncounted in the official number. In addition, those who have stopped looking for work or went back to school takes themselves out of the official number as well.

Again, that’s just a guess and I could be completely wrong. The exact opposite of everything I just said could happen, and that brings me to my Forex trading mantra: “Be focused, flexible, and above all, manage your risk!”

Alright, now that I have tried my hand being a Forex guru for a sec, here’s my plan to trade Cable this week. I look to go short at the 50% Fibonacci area. I see it as potential resistance as it lines up with last week’s low and this week’s opening price – both closely watched price levels. That’s about 80 pips above the current market price, but with this week’s top tier data, it is prudent to leave myself some breathing room to weather volatility. For my stop, I will use the daily average true range of 180 pips. For my profit target, I’m going for an ambitious target of 1.3700 (2009 lows) as I think Cable weakness may continue into their election season. That is a big target, so it will be a longer term trade. If it does go my way I will add to my position and trail my stop every few hundred pips. Here’s what I am going to do.

Short GBPUSD at 1.5180, stop at 1.5360, pt at 1.3700

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly.

So, I’ve got a trade with an 8:1 reward-to-risk ratio. Potentially higher if I do add to my trade. It all looks good, so let’s see where it takes me. Stay tuned and thanks for checking out my blog. GBPUSD Forums
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