Thursday, July 4, 2013

"This is known as the agony" - GBPUSD

I missed out on a 1:5 risk:reward trade on the GBPUSD just now because of an aggressively tight, trailing stop loss.
This was the setup I saw last night on the GBPUSD 1H chart. A prominent pinbar formed off a good confluence of technical factors that consisted of:
- contact and reaction off the 200 SMA (dark blue solid line)
- a major trend line
- 38.2% - 61.8% Fib retracement level off a major swing high
- prominent pinbar price action signal
I used a short limit order at the 50% level of the pinbar, with my profit target just above support at 1.51300. This provided a 1:5 risk:reward ratio. The graphic below shows my setup (you may need to click on it to zoom in, apologies for the tiny detail).

As you can see, price slowly meandered down, until it suddenly crashed as a result of the Bank of England's latest monetary policy decision.
I don't like trading news, so just before this moment, I moved my stop loss to breakeven, just in case the news went against me.
The news was in my favour (BOE elected to retain loose monetary stance), but the spread just went wild, perhaps over 30 pips, as liquidity evaporated. Most of my trading experience has been on the daily timeframe so far, so I don't see live market reactions to news that often.
But that spread was insane, and was enough to hit my stop loss, even though I picked price movement correctly.
This bruised my ego since this trade had been working perfectly and I really liked the technical confluence.
Lesson: anticipate wide spreads during major news release, and move your stop loss accordingly.

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