Lots of theme changes in the last week sparking directional moves in the currencies. Time to re-visit my two open plays in GBP/USD and CAD/JPY and make adjustments to the recent news and sentiment shifts.
GBP/USD Uptrend Play
I’m going to start off with the bad between the two ideas, and that’s my long position in GBP/USD.
Last week, I decided to play the broad bearish bias on the Greenback thanks to the massive Fed stimulus moves against the British pound, which had yet to match their peers to support their respective economies.
I put up orders to buy GBP/USD on pullback to a previous broken resistance area, in hopes that traders may look there to play the uptrend in the pair.
Well, the pullback did come, but it went beyond the potential support area as forex traders flocked to to safe havens after the collapse in oil prices this week, prompting a strong rally in USD. And on top of that, we got a bearish reaction in Sterling after a very disappointing U.K. employment update in today’s session, sending GBP/USD lower quickly with obviously no buying support.
With the events and price action playing out against me, I decided to cut this trade right away manually (sold to close at 1.2311) during the morning U.S. session to limit my loss.
Total: -131 pips avg. / -0.60% loss on 1.00% risk taken
Overall, it wasn’t a bad setup at the time when everyone was bearish the dollar, but sentiment shifted quickly as it seems the markets are now focusing on how bad the economic damage from the pandemic may be in the coming months. Going forward, I’ll be looking for USD longs if this environment continues to dominate.
CAD/JPY Range Resistance?
Last week, I adjusted my exit orders on my short CAD/JPY position to create-risk free trade and maximize my potential gain as the pair tested a potential support area on the chart.
Well, it looks like the rising ‘lows’ pattern wasn’t much of a problem at all for CAD/JPY bears, arguably thanks to the oil collapse and risk-off sentiment mentioned in the GBP/USD review above.
With the drop in oil prices likely to hurt Canada’s economy and the Canadian dollar in the short-to-medium term, and with global risk aversion sentiment likely here to stay (unless we get another bazooka in stimulus and/or a miracle vaccine for the coronavirus), I think CAD/JPY has good odds of further moves lower, so I decided to adjust my position in CAD/JPY. Here’s what I did:
- Shorted additional units at 76.00 to create a bigger position with an average price of 77.23
- Adjusted stop to 76.70 (one daily ATR from recent swing lows) to give the trade some room to breath from my previous stop.
- Adjusted target to 73.00 to reflect the increased odds of the down move gaining steam.
With these adjustments, I have a locked in gain of 0.19% (or 38% return-on-risk) and a max target increase from 0.69% in my original idea to 1.53% (or 305% return-on-risk). I still have a risk-free trade and my max gain is now three times my original trade plan. Not too bad.
If the environment changes against me, I will look adjust / close out the position if necessary, but for now everything looks good for the bears at the moment.
Stay tuned for potential adjustments and 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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