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Close Trade: 2009-01-30 10:50

Greetings! I’ve been in this trade for a few days and it’s been an up and down ride as I was down a bit, then Cable dropped my way to 1.41, and now it has shot back up above 1.43. So, Cable really hasn’t gone much of anywhere and with the end of the week approaching I am just going to cut this trade loose (don’t feel like holding this into the weekend) at a very small loss and move on to other opportunities next week.

Closed trade at market (1.4373)

Total: -68 pips/ -0.19% loss

A very minute loss to end the week. Looking back I made the mistake of letting a winning trade turn into a losing one. I was up over 200 pips at one point and probably should have taken profits even though my first profit target was not hit. There are times to follow your plan, and times when you need to be flexible. I should have been more flexible this time as sentiment began to change in the media on the British Pound that it may be oversold and that it was time to buy. This was evident as the US Dollar rallied against the rest of the majors (except Japanese Yen) while Cable stayed put. That’s the lesson learn from this trade – flexibility. It’s a lesson I’ve gone through before, but hopefully will not have to go through again. Thanks for checking out my blog, have a great weekend, and stay tuned for a new trade idea next week!

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Trade Update: 2009-01-28 18:39

What’s up! My trade was triggered during the morning European trading session, but Cable didn’t stop there as the pair continue higher. Luckily, more sellers jumped in at 1.4380 and pushed GBP/USD back down to my entry level. It wasn’t until after the FOMC interest rate decision to keep rates around 0.25% that we saw a push back below 1.4300.

So, I will continue to hold my short position for now. Again, unless economic conditions change for the better, I feel risk aversion will continue to dominate the trends. This sentiment may be for a little while longer and the Fed acknowledged it today in their statement on how bad conditions are and the extreme actions the they are going to continue to take. Stay tuned for updates and adjustments!

Trade Idea: 2009-01-27 15:35

PoD Chart

What’s up Forex Fanatics! Got a simple technical setup on Cable forming that may be another excellent opportunity to short the British Pound against the US Dollar…let’s check it out!

It is the usual setup using the Fibonacci retracement tool on the four hour chart. The pair is in a downtrend and currently retracing after hitting lows at 1.3500. Stochastics are in overbought territory, so we may see some steam running out around the current retracement levels of 50% before we see a possible swing lower.

Fundamentally, the market theme is that we are still in a global recession. The Federal Reserve in the US has already cut rates down to near zero, while the UK is currently cutting rates to battle the financial crisis and recession. There is more to be done by both governments and look for the BoE to catch up to the Fed’s efforts – in other words more rate cuts from the MPC even at rates this low (currently 1.50%). Unless we see banks lending, housing markets turn around, and job losses slowing sometime soon, I don’t see ‘risk tolerance’ staying afloat and Cable continue its rally.

I do think there is a bit more for this retracement to go, which is why I’m going to wait for a better price at 1.43 before jumping in short. I am using the average daily range of about 350 pips for my stop and ultimately target just above previous lows around 1.3600. Here’s what I’m going to do:

Short GBP/USD at 1.4305, stop at 1.4655, pt1 at 1.3965, pt2 at 1.3605

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

We’ve got the FOMC interest rate decision in the US tomorrow, but with rates at 0.25%, a cut to zero probably won’t make any difference. Markets are probably expecting no cut and I think only raising rates would cause any kind of major reaction to the US Dollar pairs. Stay tuned for updates and adjustments!

Don’t forget to check out our new blogger “Pipopatra” at her blog Chartology!

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