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Trade Closed: 2008-01-15 08:23

Our trade was triggered and closed shortly after UK CPI came out slightly above expectations at 2.1% headline. Let’s take a closer look at the review chart as an important point about support and resistance can be learned.

PoD Chart

As we can see on the chart, as soon as the data was released, Cable popped higher and found sellers just below our entry point at around 1.9646. This was enough to push Cable lower to 1.9600 before buyers jumped back in. Our position was eventually entered and collected about 20 pips, but momentum to the upside was strong and took us to our stop.

Total: -35 pips/ -1%

So, my point on Support and resistance is that it’s not a specific level, but a “price area.” Sellers were waiting around 1.9650, with quite a few stepping ahead by placing orders at about 1.9645. We then saw sellers jump in once again around 1.9650, but not enough to push Cable back down to 1.96. So, in trading, sometimes it is prudent to scale into positions with small portions of your total intended position size to possibly limit risk, average into a better price, or possibly not miss a move. Had we entered by bits around 1.9650, we could have reduced our loss with a small winning portion offsetting the rest of our total intended position being stopped out.

So, that’s our trading lesson for today. I hope those who don’t already scale in and out of positions take it into consideration as it is a very useful trading technique. Have a great day!

Trade Idea: 2008-01-14 23:26

PoD Chart

Good evening! We have potentially market moving events from the UK that may give us a bit of action during the European trading session.

In the line up, the UK CPI report should cause some movement, especially if the read comes in lower than expected. A number at or below 2.0% give the BOE room for a rate cut in the near future.

On the chart, we can see the pair has been slowly trending lower and if we see a pop higher in Cable, the interest rate sentiment may bring sellers at the previous resistance points. Stay tuned for updates a little bit ahead of US Retail Sales and PPI data. We may have to adjust our trade ahead of the event.

Short GBP/USD at 1.9650, stop at 1.9685, pt1 at 1.9610, pt2 at 1.9520

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

Good luck and good trading!

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