What a week, and, no, we didn’t make a killing on the pound but nor did we lose anything.
Retail traders (people who trade their own money) were advised – and correctly so – not to trade the early morning of the vote results. Here’s why:
Firstly, a trade we took late morning of the day before the vote results, the 23rd.
When you see a chart after the event, you wonder how you didn’t realise that it wasn’t going to go up. We went short (to say the price was going to go down) at the green arrow. One of our strategies is to short at the top of a ‘trading range’. The green arrow was the top of a broad trading range.
The price, however, broke out long. Our stop, as per our strategy, was equal to the height of the trading range which was over 65 pips. The break-out long went over 50 pips before it pulled back, very suddenly, to give us a break-even out.
I mention this to put things into perspective. Usually, in GBP USD, our stops are between 20 and 40 pips away. Even early on the 23rd, we were up at over a 60 pip stop. Not only that, margins change so that the leverage that you get to know is now different which means if you get it wrong your whole trade can be cashed out very quickly by your broker. Spreads (we mentioned these a couple of blogs back) go through the roof and, most importantly, we have the significant probability of slippage where simply put, you can ‘lose your shirt’.
We do not trade the monthly FOMC report because price can bounce 150 pips one way and, often, immediately reverse over 150 pips the other. The early hours of the 24th the market moved over 1,700 pips with over 500 pips of a pullback.
Trading is a ‘zero-sum game’ which means that one person’s gain is another person’s loss. Institutions lost many billions the other night, and retail traders trading could have blown out their accounts and more. If you use a retail trader that made money through the big move down, then get rid of them as they are gambling and next time might not be so pretty.
In the chart below, to put things into context, the red box was the time of the bars shown in the chart above.
For the next few weeks, due to the expansion of our family business coming online, I’m only trading between 8 am and 1 pm; this allows me time to trade the currency pairing GBP USD only. For the time being, I’m monitoring the commodities. Gold moved up to an exact measured move of the previous leg. Something James had spotted – and I’d relayed the possibility of, a few blogs back – and thus providing an excellent short opportunity. Over the next few days, we may get a second (and therefore more secure) chance to short gold. But I need more evidence that the price will not go up further.