What a difference one day makes. Yesterday British Pound was a high flying currency, gaining against all others. Today it is once again taking a beating, falling hard. Office for National Statistics released economic data showing the British economy shrank 0.4 percent in the third quarter. This came as a surprise, most observers expected the number to at 0% or maybe even showing very modest gain. By this measure, UK remains officially in recession, even as some other countries, like Germany and France, are classified as having ended it as long as 6 month ago. On a personal note, I don’t really understand how anybody can be “surprised” with anything any more. Entire year we had nothing but surprises. Numbers and opinions from one day are invalidated the next and so it goes.
Figures from today are not etched in stone, either. They were compiled using only 40% of required data, and could change over next 2 months, as more information is available. It happened before. Just last quarter official estimate was revised and the same can easily take place now. Question is, why do they even publish something that is incomplete and subject to change? Whatever happens, GBP fell dramatically on fears that Bank of England will have to expand its quantitative easing campaign, farther diluting the Pound. This is only speculation, BoE has not commented on it yet.
Sell off in the Pound brought to an end a trade originally suggested in Price action Forex trading. It was a buy in GBP-JPY. Premise of that position was to simply go long on a break above latest high and stay in until most recent low was breached. No target was set, no analysis on any sort was done. Only intermediate term, 4H chart was used. Trade was closed few hour ago.
It took couple of weeks after the original post for the trade to materialize, but market finally turned and I was in at 144.65. Since then it was updated several times, most recently in Central Bank’s minutes. Stop had to be adjusted couple of times, including about 10 hours ago, to 150.45. This simple trade produced 580 pips profit, using nothing else but price. No indicators or even estimates of any kind. It is possible to keep this business simple and even make some pips. Another trade using the same approach was in EUR-NZD and will be discussed in more details next week.
I had another trade in Pound pairs that was covered in this blog, long GBP-CHF from early in the week. It was locked in a range for a few days and suffered the same fate as the beast- fell on the recession news. Here the stop was just readjusted, as the price had poked above 1.6800 shortly before. Trade didn’t last much longer and was closed for 82 pips loss. Currently price is churning around 100 SMA of 4H chart. I will consider it as a possible entry at a close for a week, in a few hours.
A little Pound suffering today might not be too bad. As a matter of fact it was needed, to a degree. This has to do with EUR-GBP analysis, in which future entry was dependent on a strong bounce of that pair. Early next week I’ll look at possible sell signals in Euro-Pound. Will have to decide what magnitude time frame chart to use – daily or 4H hours? In the meantime it is time to rest. Have a nice weekend!
Mike K.
What size chart do you use to set stops? How did you know to stay in on the 19th?
Which trade are talking about? Stops, at least original ones, at the beginning, are normally determined by the same chart (time frame) that creates the set up.
Great timing on the adjustment. Worked out really good. Thank you.
This is good, beast trade. Is it possible to trade the highs-lows all the time? For example, right now position would be short gbp-jpy, until stopped and reversed. Have you traded like that? What are the results?
I think that what happens with Pound is one big manipulation. It moves on steroids, at the opposite direction than logic dictates. Something is behind it.
Casey, yes, you could trade it as an “always in” system. But I wouldn’t suggest it. You’d have to be prepared for very long stretches of sub- and non- performance. Much better to be selective.
Kramer, conspiracy theory? A cabal of neferious characters sitting in a dark room, filled with cigar smoke, somewhere in London, calling shots as the dice roll…
[...] after Europe opened. Not dramatically, but enough to get noticed. Looks like after Friday beating, Pound is reversing again. GBP has been rising all day, seemingly expecting bad economic data from last week to get [...]
[...] quantitative easing program by additional £25 billion, which is less than expected given contraction in UK economy in last quarter. At the same time European Central Bank also left its benchmark rate unchanged at 1% [...]
[...] as easily as quick sand. Recently, after brief revival, GBP suffered serious sell off on news of economic contraction. Since than we had scares of additional quantitative easing, followed by encouragement that it will [...]