ForexSpirit

In many ways my trading over the past week exemplified how I well I can actually do.

I had a trading plan in place. I stuck to it and I was able to extract some decent profits from the market for doing so.

Let’s rewind to the Friday before last, February 1st, when the Non-Farm Payroll report was released. The headline employment number came out at -17,000, well below the expected consensus number of 65,000. On its own this deviation is decidedly dollar bearish and had the potential to send the euro to new heights.

Prior to this data release I was holding a single EUR-USD position with 1:1 gearing from 1.4872. When the NFP release came out, there was a spike up to just over 1.4950. I waited for the retrace to play out (when short term traders were exiting trying to make money from the spike) before going long with a 2:1 entry at 1.4930.

There was no subsequent return to a move up for the euro. It’s possible to pick out a myriad of reasons why this might have been: resistance from the previous high at around 1.4965. The slight tick down in the unemployment rate from last month’s 5.0% to this month’s 4.9%. The upward revision to last month’s NFP number. The better than expected ISM Manufacturing Index report that came out later on that Friday morning. A buy the rumour, sell the fact scenario. All bad US data has been already factored in (with the recession word on everyone’s mind), so bad US news is now actually good for the US dollar.

The rationale isn’t all that important. What is important is how I reacted to what happened in the market.

I had stop losses in place just above the 1.48 handle for both my EUR-USD trades which were hit by mid-morning. I stayed out of this market for the remainder of the day to see how things would play out.

With no bounce back up by the end of trading on Friday, I was comfortable entering a 2:1 short trade on EUR-USD when the markets re-opened last Sunday. Not much happened on Monday with only a small trading range occurring just above the 1.48 level.

Tuesday saw another drop and my profit target was hit. In hindsight it would have been nice to have gone for more than the 50 pips that I did, but I want to be slightly more prudent when trading against the long-term trend direction.

On the NFP Friday, as well as a drop in EUR-USD, there was also a pretty big down move in GBP-USD. I had a resting Anti-Hedge entry to go short at 1.9765 which was hit.

When price fell to around 1.9660 I entered another short position. This new short was relatively short lived, as the bounce back on Monday of this week took me out of that position.

I continued to hold my other GBP-USD position and added to it on Tuesday night at 1.9650 and on Wednesday night at 1.9600. The catalyst for these trades was the up coming BOE rate decision on Thursday morning. Another rate cut was anticipated by the Bank of England, which provided good odds that sterling would get weaker in the run up to that announcement.

Both of these extra GBP-USD positions hit their profit targets early Thursday morning, several hours before the actual BOE change was released. I closed two-thirds of my original GBP-USD position just before the rate announcement to lighten up my load and bank just over 200 pips from that part of my trade.

The BOE did indeed cut by another 25 basis points and sterling continued to drop for the rest of the day. The final profit target for my remaining position was hit at 1.9450 later that morning.

The ECB also had an interest rate release on Thursday, and also met expectations by keeping rates unchanged. The euro fell on this news. I entered a new EUR-USD long at 1.4570 as Trichet began his speech. While he stuck to his guns on the ECB being focused on price stability as usual he also hinted at slight concerns for European growth going forward. This further widened the door on speculation that the ECB might cut rates at some point this year. I’m not sure if we’ve seen a bottom to the current correction taking place so I’m wary to enter any trades with high gearing at this point. If anything I’ll be looking for some quick bread and butter trades next week until we see either a sustained break up or down.

I also have three USD-JPY short positions open right now. I have been waiting for another test of the 105 lows which did not happen last week. I’m probably going to just switch over and try to grab smaller pip amounts when these trades return to profitability as USD-JPY is incredibly range bound at the moment.

All in all a pretty productive week.