Thursday 10/3/11 Getting a smack from GBPAUD -99

It’s been a quiet couple of weeks with not much going on.  Quite a few orders set, but very few triggering.  Here’s one that did trigger…..but I wished it hadn’t!

I had a long and short order in for GBPAUD from Sunday evening. I had a bias to the downside but there wasn’t enough evidence to completely convince me of the downward bias so as per my rules I placed an order for both sides. Also I’m aware of the upcoming interest rate announcement for the UK but I’m taking these trades on weekly charts.  I’m comfortable taking the trade.

Come 4 days later, its Thursday and its also the UK Interest rate announcement. Price edges north all morning and I wonder if its people positioning themselves before the News announcement. About 15 minutes before the news comes out price makes one last surge north and triggers my long order at 1.6138. It goes about 2 pips in my direction before the news is announced.  There is no change in UK Interest rates (you can hear the audible sigh of relief from mortgage holders across the country) but of course with there now being no change that leaves a lot people with unwanted sterling on their hands and they sell. And boy do they sell.  Sterling gets distributed ( a fancy way of saying it’s being sold) and price crashes.   Just over two hours later price has hit my stop-loss and I’m out of my trade.  That’s the quickest turn-around I’ve seen in one of these growth trades.  A great example of how fundamentals will always trump technicals on the back of economic news flow.

This has been a classic example of ‘pump and dump’ and this time I’ve been caught out by it.  I drop 99 pips.  So what are the positives?

1. Price actually drops 300 pips from my entry.  Without a stop-loss and pre-arranged risk management I would be sat on a huge loss.  Remember: your first loss is always your smallest!

2. Filter identified. I mentioned at the start of this piece that I lacked the evidence to back my gut feeling for a downward bias. Well this week I was able to develop a very simple yet immensely effective idea that would not only help me choose possible trend direction but also help me add to my positions. Result. I’ve spent all spare time this week (which admittedly has not been much) testing the filter and I’m very pleased with it. 

So there you go. I planned my trade, traded my plan and managed my risk. And yet the outcome was still a ‘business expense’. That’s part of the game I’m afraid. 

Until next time, trade well.

FXTraderPaul