Trading Forex on the west coast can be tough. Most of the activity happens at night or early morning local time, so my schedule is upside down. By now I’m mostly used to this, but some occasions are real eye opener to the fact of how screwed up it really is. Like right now. I’m sitting in this nice hotel, after couple of days of active relaxing and decompressing ( or maybe decomposing) and I can’t sleep. It is only 6 AM. What the hell, time for charts. As it was so unceremoniously pointed out to me, Pound made nice gains on Friday and I missed out. My gains in GBP last week were more than satisfactory, so I don’t feel that way. But I agree, Sterling made big strides before the weekend. About time. My interest is still in buying GBP, but situation is a little complicated at the moment.
Here is current 4H chart of GBP-CHF.
Price is very close to a potential resistance level of about 1.6950. Considering speed of this advance to date, it is very possible that will see a breakout above this area. This presents couple of problems. Objective could be as high 1.7800, but most logical support (2) is also far away. There is nothing wrong with taking a trade like this, because stop is clearly defined (few pips below 1.5670 area) but one has to be mentally prepared from the start to be in this trade for a long time and maybe suffer big draw-down. This can be mitigated with low leverage. However, even only 1:1 leverage is not an excuse to sit on a trade forever. If a predetermined “I’m wrong point” is reached, one should close it rather than think markets always turn around and I can sit it out. Another possible support(2) is only about half the distance. This would make this trade much more attractive, but this level is not as clearly defined at the moment and is subject to change. Combination of retracement levels, 100SMA and previous minor lows. Buying on this breakout is, at the moment, not very attractive to me. There are many possibilities of what happens. Here is one that I’d like to see.
My idea for a good buy set up includes some price pullback. It doesn’t really matter how much, as long as it is easily noticeable. This would make current resistance level much more important and present one more buying opportunity at better price. This would require zooming in to 1H charts, something I do all the time. BTW, EUR-GBP looks very similar. It should be understood, above scenario is something I would like to see, not something that will necessarily happen. Risk is that Pound just keeps going up and I’m not on board. For me, this is mitigated by the fact that I already have a longer term GBP-JPY position, discussed in last post, plus couple of other trades not covered in the blog. So, I am only an observer for now.
This here is a buy order which will be placed before market opens.
CAD-JPY buy order on 4H chart at 74.94. My objective is quite ambitious, 79.00. Frankly, it would not be a bad idea to simply buy it at the open (depending on any gaps), risks are small, but this position would have to be watched closely. I will be traveling then, so can’t do it. Should make it home in time to for second half of Super Bowl. No emotional stake for me in this game, don’t care who wins, but will watch the end of it. After all, one has to pay small tribute to American advertising industry.
Mike K.
Very good post. Sheds light on number of issues.
Rested and ready to go? Big swings you talk about in your post. Will you be looking for smaller trades in the interim?
I will, but since I also follow many other crosses, not sure what will be covered in the blog. Wherever I can find decent trades…
Interesting. I thought you would be buying Pound right away. Guess I’ll wait, too.
Mike, recently I’ve been exposed to a system that uses no leverage, has very small gains and doesn’t use stops. Developer says that you can’t loose money, because currencies retreat to previous level. You suggest that if things don’t go as expected, one should exit loosing position even if no leverage is used. What do you think about adding to loosing position? Then you only need a smaller move your way in order to get out of loosing trade with small gain or even?
Heather, in the long run it is not going to work, Eventually one will get stuck on a loosing side of some big, long move. Just look at the Yen price of last few months. people who bought, say GBP-JPY above 200 are probably broke or will have to wait for who knows how long before things turn their way. As for averaging, well, I wouldn’t advise to do it more than once, only one extra position. Even then one should have an exit strategy in order to avoid disaster.
I know somebody who was buying GBP-JPY as it went down. Almost talked me into doing it. He wiped out his account.
Common story over last few months.
Man, looks like you were right to wait with gbpchf. It is falling like a rock!
[...] the same trades, they were in the same direction, just the time frame was slower. In a post Breakout dilemma I covered a possible buy in CAD-JPY. Time frame used there was 4H but I was on a lookout for trades [...]
forex trading currencies…
I have been looking for a long time and found this post. Thanks a lot….