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Sterling took a beating today on comments from U.K. PM Boris Johnson to the impossibility of getting a Brexit deal done. While not news to most traders following the Brexit story, I think this is a pretty strong catalyst for downside momentum to pick up the British pound. I’ve decided to maximize my potential gain (while reducing my max risk), so here’s a quick update on this latest adjustment.

Longer-term Downtrend in GBP/JPY?

GBP/JPY 4-Hour Forex Chart
GBP/JPY 4-Hour Forex Chart

In case you haven’t been keeping up with the latest Brexit drama, today Prime Minister Boris Johnson tells German Chancellor Angela Merkel that a deal is impossible if the EU holds onto the demands that Northern Ireland must stay in their customs union. News of this sparked broad Sterling weakness during the morning London session as it’s a pretty catalyst for no-deal Brexit odds to shoot higher.

At this point, unless we see a miracle deal between the U.K. and EU before the end of the month a no-deal Brexit is the likeliest outcome, a chaotic one for both the EU and U.K. if it does happen. So at the moment, I think the odds are pretty good of further weakness to hit GBP/JPY, which I shorted at the end of September to play these type of scenarios.  It was a longer-term plan, but with momentum potentially ready to pick up given the latest developments, I wanted to ramp up my position to maximize my potential gain, while reducing my risk at the same time. Here’s what I did:

  • Rolled max stop lower from 140.75 to 133.70, basically my original entry price. 
  • Added another short position at market (130.93). 
  • Total position risk is now 0.28% risk at a 133.70 stop.
  • Max gain goes from 1.38% on 1.00% risk at 124.00 to 2.08% on 0.28% risk at 124.00 target. 

So, I’ve reduced my risk by 72% and increase my potential gain by 50%, which is not a bad adjustment. Looking forward, I may add another position with another two day ATR move (touching somewhere around 128.00), which is not out of the question with top tier U.K. data this week (GDP & manufacturing production) and a speech from Bank of England Governor Mark Carney just ahead. Looking forward to seeing those updates and the market’s reaction, as well as any updates from Brexit or the U.S.-China trade war that is likely to influence Japanese yen sentiment. Overall, the data and tone of the markets haven’t been positive, so I’m pretty confident in the odds of further weakness for this pair.

That’s it for now. Stay tuned for adjustment updates 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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