*A review of my recent attempts at shorting the Pound via the GBPJPY FX currency pair*
Welcome back to the blog! We are now in Christmas week where liquidity might be low but festivities and Christmas spirit should be at all time highs. The holiday season has always been a period where traders are wary of exaggerated short term market moves and price gaps thanks to multiple public holidays, lower levels of traders and market participants being active and less liquidity in the markets.
I am personally only focusing on 2 main positions now and have very little exposure to the markets so I can enjoy the festive season, or at least what is left of it thanks to increased lockdown restrictions in the U.K (more on this later in the blog post). One of my current trades is a short trade position on the GBP FX currency and I am going to show you this in detail in this blog post.
I recently published a blog post explaining why I am bearish on the Pound and showed you a number of charts and data to support my theory. This post can be found via the link below.
GBP Short trade – Position one.
As you may be able to see in that blog post, I did actually enter an initial short position on the GBPJPY FX currency pair last week at 139.00 with some solid technical analysis to support taking a trade at that level. This trade entry can be seen below.
My first short trade position was entered on Monday afternoon and it it started off well. Price continued to sell off through the afternoon and overnight in to Tuesday before short term GBP strength returned and price began to climb. I had a fairly conservative stop loss of 75 pips on the position to ride out any volatility but unfortunately this did not help me and my stop loss entry was triggered on Wednesday morning.
I still had and still have a bearish view on the Pound and I was happy that my underlying fundamental analysis and higher timeframe technical analysis of the GBPJPY FX currency pair was correct. I believe I just timed my intraday style entry wrong and suffered the consequences with the loss on this trade.
In hindsight, perhaps when my trade position was 70 pips in profit then I could have made the position net risk free by moving my stop loss order to the entry price but I didn’t think this was suitable. Price was still consolidating whilst pushing lower and I wanted to remain in the trade and did not want to be taken out of a profitable trade with no profit (and no loss) because of a price spike. As I mentioned in the opening of this blog post, short term price spikes and price gaps can be more common around this time of year.
GBP Short trade – Position Two.
I sat on my hands through the rest of Wednesday thinking about the short term moves on GBP that took my out of my first trade for a loss and I revisited my higher timeframe analysis which you can see below.
In reality, so long as that bearish upper wedge trendline holds strong and price remains bearish with the 50EMA trading below the 200EMA, then GBPJPY is a good short trade in my opinion. What I should have done with my first entry was either wait for price to retest that trendline before shorting OR make sure my stop loss was kept above the trendline to ride the waves and any future retests of it.
This is exactly what happened in the later half of last week.
Price went on to climb past the stop loss of my original trade and it then retested the weekly trendline I had identified on my higher timeframe chart analysis. There were clearly sellers at this level because a large bearish engulfing candle soon formed and price struggled to break higher. In hindsight this was the optimum zone to enter a short trade position.
I still maintained that the economic situation in the U.K was set to get worse. I could see covid cases rising exponentially and with the Brexit deadline looming and no deal yet to be made, it was purely a matter of time before the markets came to their senses. I entered a second GBPJPY short trade position last week at 140.000 (actually 139.999 after slippage) and took this trade position in to the weekly market close.
My actual current GBPJPY short trade position can be seen on the chart below. Taken from my trading terminal.
Friday nights final candle closure was quite abnormal with a large price spike right before the close. This same spike appeared across a number of assets and securities on Friday and I believe it was all linked to a large spike in trading volume across the globe thanks to portfolio rebalancing. On Monday 21st December (today), Tesla is due to be included in the S&P500 stock index and this is a massive deal considering the large market cap of Tesla and the volatility that surrounds the trading of the Tesla stock.
Over the weekend, the U.K government scientists announced that there is a new strain of Covid-19 present in the U.K that is spreading far quicker than the original which is causing an exponentially faster increase in cases across the country. This then prompted the prime-minister to announce increased lockdown measures across the country with a new “tier 4” lockdown in London and the south east which involves more business closures and reduced travel.
This lead to a large price gap down in GBP and other currencies as well as initiating a sell-off on the FTSE100 index which is now trading around 180 points lower than Fridays market close.
I cannot see the situation getting any better over the next 2 weeks and with the Brexit deadline looming and a no-deal exit looking even more likely, I can see Pound volatility increasing and further decreases to come.
There are further signs of trouble with multiple countries now banning U.K travellers from entering. This includes many European countries, Canada and Switzerland. There full list of more than 20 countries now banning U.K travellers can be found via the link below.
GBPJPY downside price targets.
My first price target has always been 137.00 which was the nearest intraday support zone and price lows. This target was reached this morning and has triggered me to lock in some profits to cover my previous GBP short trade losses and also remove exposure from this new position. My stop loss is now placed slightly below my trade entry at 139.999 and I am now focusing on only upside potential for this trade.
My next price target is the daily price support zone at 135.000 which has shown reasonable strength in recent months. If that price level is broken to the downside then I will be focusing on how price reacts if/when it reaches the bullish trendline that forms the bottom of the alter wedge consolidation pattern I have previously spoken about.
And finally, as a purely “blue sky” scenario, I have the multi-year lows of 127.000 marked on the chart. Last hit in the middle of the coronavirus pandemic back in March this year and before that it was tested as a support in summer 2019 when U.K. elections and Brexit was moving markets.
The idea behind this blog post is to not only keep you updated with how my trades progress but also to show you that sometimes even “experienced” traders get their timing wrong and it is okay. So long as you remain calm and understand how the larger market is moving, you can often work out where you have gone wrong and fix it with another well placed trade position.
The power of a positive reward:risk ratio allows for losses to be recovered and long term profitability so long as your winning trades remain larger than your losing trades. Cut your losing trades fast and let your winning trades run. In the case of my two GBP positions, the first trade cost me 75 pips but now, one week later, my second GBP position is now trading at +300 pips.
Please remember to read through my previous GBPJPY analysis blog post to gain full understanding of why I am bearish on this currency pair. The link is below.
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