Taking a shot this week on GBP/NZD to play the improving global risk sentiment with a strong technical signal. Check it out!
GBP/NZD Support Break
In case you haven’t been keeping up, global risk sentiment has been on the upswing towards positive as economies start to open back from lockdown protocols to limit the spread of the coronavirus. Equity markets, oil and risk-on currencies have been in rally mode on the prospects that demand will come back soon and we will avoid a global economic collapse.
I don’t know if that is what will happen, but for now, I’m going to go with the flow in the short-term until something changes that outlook.
I’m playing this through GBP/NZD, mainly on the fact that New Zealand seems to have almost beaten the virus and ready to re-open their economy, while the U.K. government has ruled out a swift end to their lockdown.
From a price action standpoint, we just saw a technical breakdown of the strong support area around 2.0500, and it looks like its only picking up downside momentum since the break. And with the next support area more than one daily ATR away, I thought that the potential return-on-risk for a short-term position was attractive enough to take.
So, I decided to short at market with a nibbler position and a stop around one daily ATR away to limit my risk. My max target is two daily ATR away in case momentum continues, but I won’t hesitate to re-evaluate the trade if the major support area around 2.0000 is retested. Here’s what I’m doing:
Short half position GBP/NZD at market 2.0310, max stop at 2.0550 with 0.50% risk, max target at 1.9805
I’ll be risking 0.50% of my account with a potential 2.08:1 return-on-risk. If the market does go my way and positive risk sentiment remains strong, I may add to the position to maximize my potential gain.
But we are heading into a new month of global economic data which should be pretty terrible as April was the bulk of the lockdown. If sentiment changes or any other fundamental catalysts to shift the environment against me, then I’ll adjust / close down if necessary.
That’s it for now. Stay tuned for 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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