Thursday, July 21, 2011

GBP/USD June/July Trade - 2011

I made some bad trades on a long term call I knew would play out. Ended up with greater losses than I should have.

  • Entered on Strong price action 1.6224 June 22, 2011
  • Thesis based on long term fundamentals and inflation based drivers and continued weak US economy
  • Sound trade with bad entry for short term feelings
  • Considering this was my personal account I theoretically was a bit over leveraged. 
  • I reacted on the intraday and didn't wait for the daily chart to close out. 
  • It was about two days below the 00's where I shorted and made some losses back.
  • Had I held on to the trade with less leverage initially the interim downside would not have seemed so bad. 
  • A flurry of risk aversion from the Eurozone caused the GBP to drop big time initially while weak economic data relative to the US exacerbated the move. A lot of it was noise in the short term considering the big reversal in the first half of JULY. 
  • My target was 1.64 plus once the 00's were broken I let fear take over since the R/R ratios were way outta whack and I'd have to expect a target of 1.70 to maintain a 2:1 ratio or 1.66 - 1.67 for a 1:1 ratio. Maintain a 1:1 seems more realistic in the medium term while long term 1.70 is my ideal number. 
  • Scaling up to a full position/pyramiding above 1.625 is a good idea if UK economic data can support the bullish move as risk aversion melts away.
  • Need confirmation in higher crude (CL > 100, ES >1330 and USDX < 74.6) 
  • USDX was used as positioning and timing again the huge spike of false risk aversion led me to bail early. 

I am understanding my style more and being able to reconcile my strength in analysis to a viable trading strategy. I need to be more well capitalized and less leveraged with more smaller positions to work in my favor and to cut the bad ones when charts and fundamentals turn. I need a higher degree of freedom to capture the trend moves I want, this is more akin to long term trading and investing than purely trade oriented styles which I have been trying the past few months. 

Currently GBP needs to break out of the down trend channel/falling wedge to confirm its continued up trend to the end of the year. Strong economic prints required and more rumors of US easing and weak economy will support this. Risk aversion is already a numb factor to prices as EUR/USD maintains above 1.40. Crude fundamentals are a bit more tricky but can be overall supportive of higher prices given demand can remain stable.

Strategy Improvement: Less leverage to withstand the noise and use scaling when chart turns more favorable. I ideally should have held on to this position until full daily and weeks chart confirmed a continued down trend. Currently if prices break to the 1.625+ is where I should have scaled to a full position or pyramided. To targets of at least 1.64 shor term cover some then add back on breaks of 1.65 to 1.67. END year will be risk positive i expect 1.70 and beyond, bar anymore shocks. 

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