Tightening

As we look forward to the G20, this coming Thursday, everything seems to be tightening up...

Cable was turned back last week by major sloping resistance.

Having almost got back to the 4H 800 sma, GBPJPY is sitting back in its tight range around 140...And GBPCHF speaks for itself !

But are any of them tradeable ?...

My answer is, not just yet; but here is what I am looking at...

Cable

After the slapping the Dollar took in the wake of the Fed's recent decision to 'print money', it has started clawing back its losses against pretty much everything.

Right now Cable is hovering around the 1H 800sma. Whilst it is long overdue a return to it's 4H 800,which is just off the top of the chart, the Head and Shoulders pattern it formed last week makes - in my opinion - further downward movement more likely in the short term.

And if it can break away from the 1H 800 to the downside it will likely close below 2 sloping support lines.

At which point next major support is a long way South.

This isn't to say it won't head back North - hey, what do I know ! - It's just that I don't see a viable trade there for me.

Not so GBPCHF...

I think the boundaries of this tightening wedge are tradeable in either direction, depending on what the pair does when it reaches them.

In particular,I'd love to see it regain the 1H 800 sma (blue line), where a subsequent breakout would either constitute a break or bounce of sloping resistance that has turned it back since the old king died (...!)

Bottom line, nothing on just yet but it could be a big week.

The Story So Far...

Last week did little to excite. I lost on a couple of early trades but pulled the week out of the bag with a nice short term divergence trade on GBPJPY. With 1% account in the bag by Wednesday I didn't see anything sufficiently interesting to tempt me back into another trade for the rest of the week.

This in itself is progress over where I was with my trading in the bad old days and whilst the week's gains have been modest, they are gains none the less.

At the conclusion of my 9th live trading week, 8 have been profitable and the account is 15% up, which is a better start than I might have dreamed was possible just 2 months back.

What am I learning ?

1. Modest, consistent gains are better for my mind-set (confidence) and my bottom line... over time.

2. Time spent analysing is infinitely more productive than market watching, since...

...Conviction is everything. If I really believe in a trade, I am prepared to load it up and stay with it... and it generally comes in.

This all rhymes with trading less, not more. If I only traded those set-ups I had high confidence in my profitability would jump again.

Crazy ?

Who would think of shorting EURUSD in the light of the last 2 days ? You'd have to be crazy, right ?

Well, maybe not.

This pair is 2 days and (a massive) 430 pips from the 5m 800 sma, which is a long time (statistically) and nearly 5 times the average distance it moves before returning; that's nearly 3 standard deviations !

...Also, the pair has come up against strong historical resistance at 1.3680 and the Daily 800 sma.

...The 1H MACD is divergent...


...The 5 minute chart is forming a 'Head and Shoulders'...

And tomorrow is Friday... the day of reversals.

I wouldn't mind betting it will re-test that resistance at the Asian open. But, whatever, I'm going to be ready to short it on a strong 5min close below that neck-line.

With respect to profit target, I don't think the 5min 800 sma is realistic, but the measured potential of a reversal against the neckline coincides with recent support at 1.3518

... which is still 130 pips from where it is now and presenting of a very juicy risk to reward ratio.

I might just have to stay up for this one !

Not Bad...

At the back end of last week, I wrote that I felt Sterling was due for a bounce - but that GBPJPY might complete its cycle back to the 800 sma beforehand. I also said that USDCHF's lack of 'follow-through' might be the prelude to a fall.

So, how did I do ?

Well, by Tuesday evening I was 150 pips and 1% account down having entered, then wimped out of, both the GBPJPY and USDCHF trade plans. Had I stayed with the latter I might have made an awful lot of pips. Bugger.

However, having watched a head and shoulders forming on GBPCHF throughout Tuesday, I resolved to enter short if it broke the neckline and 1H 62 ema, targetting the 200 sma, as my back-testing has taught me that this is a very high probability set-up; particularly on this pair.

Here is the set-up...

...And here is how the trade went.

I actually entered 2 positions, a 'pilot' position as it started to break on the 5min chart and then a second, 2 times standard lot size on the 5min close below the neckline.

This was such a sweet set-up that I felt very confident throughout and exited 4 hours later with a profit of 200+ pips and 4% account.

Incidentally, if you look back at the first chart you will see that the pair went on to touch its theoretical profit target of 330 pips, based on the measured distance of neckline to the peak.

My second prediction that Sterling would rise, was assisted to fruition by the Fed, yesterday afternoon. I don't know about the rest of you but I found it very hard to sit on my hands as the Dollar tanked against everything - especially CHF, given my earlier prediction.

Personally, I responded by shutting my laptop down and walking the dog. Despite my earlier success I was gutted not to have capitalised on my instincts and didn't trust myself to trade.

However, the sun came up this morning and seeing a consolidation box forming around the 1H 800 sma I resloved to buy a 1H break-out of this zone.

Here is how the set-up looked...


And here is how the trade went...

This was another belter,with 160 pips banked, but since I had already made my profit target for the week I was trading the 'beer money' rules and so came away with just under 1% account from the trade.

I can't justify my reason for exiting when I did beyond the fact that I saw momentum starting to wane on 5 and 15 min charts, and that I felt the pair had probably risen enough for one day (!).

Now I am looking to re-enter long, particularly if we get a decent bounce off the (pink) descending support line. However, whether I will have the bottle to carry this through - especially on a Friday - remains to be seen.

Here's a Thought...

Last Thursday the BoS dropped their base rate to 0.25% and within an hour Sterling and the Dollar spiked massively against it.

Here's the USDCHF 1H chart; which roared up 315 pips.

But what has surprised me since is the lack of follow through, which given the strength and pace of the initial reaction strikes me as strange.

So I pulled up a Daily chart on which I was planning a short trade some weeks back. Here it is unadulterated...

As you can see, its rise has been halted by that old rising support now resistance...

... and I just wonder if this pair is finally running out of steam.

So, turning our attention back to the 1H chart...

...I've drawn a horizontal support line beneath the latest consolidation zone at 1.1833. I note that
this level has been a significant support before.

From here it's either going to gather its skirts and burst through that sloping resistance line. Or, it's going to fall and close back through support.

And if it does, I'm going to short it.

Sterling Bullish ?

At the conclusion of my last post I offered the opinion that downside potential on all of the Sterling crosses looked to be dwindling and the back of the week saw the 3 that I follow reverse.

...which is encouraging.

As planned I did have a couple of cracks at shorting GBPJPY back to the 800 below 155.50 - which it made - but it was a choppy old descent and I was not sufficiently convinced / too nervous to stay with either trade. Net result; 120 pips lost.

If I don't really believe in a trade, I can't seem to make it work and am better off staying clear. This is a Lesson I could do with hoisting in.

Once the reversals happened I traded much more positively, scooping another 200 pips on Cable and GBPJPY before the trading week closed.

I ended the week with the Account 3% up, which - unsrprisingly - I'm pretty pleased with.

Looking forward, the technicals for Sterling remain bullish. Here are my tactics...

GBPUSD

Having already taken 100 pips out of Cable's return to the 1H 800, I am a buyer on a 'strong' 1H close above 1.4067 and will add a position on a close above descending resistance. Profit Target will be he 1H 800 sma.

GBPCHF

After last week's massive reversal spike following the BoS Interest rate cut, I am very bullish this pair...

Having said this, I'm happy to go with a strong 1H breakout from it's current consolidation around the 1H 800 sma in either direction.

GBPJPY

Having taken 100 pips out of this pair's recent reversal I'm going to stay on the side-lines until next week's price development generates a more emphatic trigger, either way.

In fact, I'm hoping that nothing triggers too early in the week (and forces my hand) as my instinct tells me that the first couple of trading days could be choppy.

Of the two trades I am currently looking at, Cable is my favourite as it is completing a cycle.

Sterling Triggers ... Again

After last Monday's dissappointment it was perhaps for the best that I spent the rest of the week out of the country and unable to to trade.

However I returned home early this morning to see Cable, GBPCHF and GBPJPY all shaping to re-trigger the short trades I had first anticipated last week.

Between 0900 and 1000 I entered small shorts in each of these pairs and at around lunchtime profits of 550 pips and a shade under 3% of account were taken off the table. Hurrah !

This emphasises, again, the virtues of patience (albeit forced in my case) and tennacity if a sound strategy doesn't at first succeed.

So, where from here ?

Well each of these pairs still has downside potential before support targets are met.

GBPUSD


Whilst the current continuation pattern may dissipate overnight, I wouldn't enter short until support at 1.3737 can be broken with conviction. I would be targetting the all time low at 1.35 initially.

GBPJPY

This pair looks to be forming a downward sloping channel but for me the key support level is 135.50. A convicted break of this level early - and on volume - might result in a return to the 1H 800 sma as it converges with older support levels around 133.50.

GBPCHF

This pair appears to have the most downside potential of the 3 with the lowest lows way off at around 1.52

However...

With big moves complete, pips banked, significant 'white space' between price and 1H moving averages and dwindling MACD momentum on the shorter term (5-15 min) charts, my personal appetite to the downside on all of these pairs is not what it was.

If I go short again it will be on one pair only, for beer money, and only then if all 3 are falling together.

... And of the 3 I favour GBPJPY, simply because it will be completing a divergence 'cycle' on the 1H chart.

With respect to Cable and GBPCHF, I am more interested in waiting for a short term (5m) divergence opportunity - later in the week - if continued downside is not reflected in MACD momentum on the 1H charts.

Strewth !

When I posted this morning I genuinely didn't expect Sterling to bomb so quickly.

When it did I my Cable and GBPCHF shorts triggered.

When it reversed, re-tested support - now resistance - and didn't reverse back to the downside, I got out.

... 130 pips and 0.75% account to the worse.

This isn't supposed to happen and I need to understand why before I make my next move.

Short Sterling Tactics

Okay, so just in case my short Sterling bias is right, let's start commiting some tactics to paper.

We'll take the 'Yippon' first as it looks to me like this pair might be the first to fall...

GBPJPY


The key signs for me here are the MACD divergence and the fact that the pair hasn't managed to re-challenge the highs of last week; it is currently hemmed in between 1H 62 and 144emas.

So what I am thinking is that if it can close a nice big bearish 1H candle below the 1H 200 and horizontal support at 136.36, I would be tempted to short it, targetting the 1H 800sma.

GBPCHF

As I said in last Thursday's post, I just don't see any more near-term upside potential in this pair, and because the recent retracement wasn't preceded by MACD divergence on the Daily charts, I can't help feeling that there is still plenty of appetite to the downside.

But, what a consolidation ! I've pasted a 4H chart because I couldn't show the size of the consolidation box on a 1H chart.

Here I would take a big, convicted 1H candle closing below the 200sma, rising support and - unless all the Sterling crosses were falling together - horizontal support at 1.6361.

My target would be next horizontal support at 1.57 for ... a lot of pips.

GBPUSD

Finally, let's look at the major...

What I note here is that whilst Cable has observed sloping resistance religeously, it's wandered through my shorter term rising support line as it's consolidation goes on .... and on.

So here it's the horizontal support at 1.4044 that must be taken out to provoke a short entry, which would target the lowest of lows at 1.35.

When ?

Since I may well be wrong on direction, timing is an even bigger ask to determine, but whilst GBPJPY could go at any time, it may be that some big news will be required to force the breakouts I'm hoping for in the other pairs. I also think it is most likely to occur when the maximum number of market participants are in the game - so early NY session is, for me, the most likely scenario. With the first observation in mind I note that the dreaded NFP Friday is hoving back into view...

... but I do hope that they trigger before then.

Week 9 Strategy

No charts tonight because little has changed since last week. Cable and GBPCHF continue to consolidate and having made it back up to the Daily 62 ema, GBPJPY could be due a reversal.

The other pairs I follow, USDCHF and USDCAD, are rangebound.

So... Whilst my Sterling bias remains to downside (and I would certainly back a breakout from GBPCHF's current consolidation zone) I need to see how the markets develop before another clear trade opportunity sets up.

Yen Comes In

Those of you who follow USDJPY - and, perhaps, who read my last post - will know that the 5 minute divergence trade I had been planning triggered when Asia opened late on Thursday evening.

Here's how it went for me...

Not shown here, Tom and Iactually entered a small pilot position as it crossed the minor support line but got out when it started to falter a bit. This wasn't particularly slick.

However, we stayed watching closely, having determined to re-enter on a break of horizontal support. When this happened shortly afterwards, I was confident enough to short the pair at twice my standard lot size.

I then exited at the first indication of a reversal, electing to take the quick pips...

... and since I was so leveraged relatively, I harvested a shade under 1% for the account.

In hindsight this may seem way too timid, especially since the pair eventually made it all the way back down to the 5m 800 sma (... and at my trade size this would have represented a massive gain) but you have to bear in mind that at the time, Tom and I didn't know this, and with the last Friday of the month looming, I wasn't prepared to sacrifice any more with a tidy profit ready to pick off the table.

My last reflection is that whilst a well structured 5m divergence trade makes it back to the 5m 800 sma well over 70% of the time - against all pairs - in my backtesting, those first 'quick' pips are as close to a certainty as one gets in FOREX. Further, the subsequent reversal (as was the case here) can be severe and hard to stomach - particaulary if one is well leveraged.

A smaller lot size would undoubtedly have kept me in the trade longer, but this would - to my estimation - have been a dangerous game to play on a Friday.