Forex trading and USA holiday

Good morning Forex day traders, 8 am Monday 19th February 2018. USA holiday.

We missed the first trade of the day. From the close of the bear bar at bar 1, an unassuming engulfed bar, I went for my first pot of tea of the day. I missed the second bear bar, bar 2, which provided a probable entry short of eight pips.

Eight pips are our minimum entry in the GBP/USA currency market.

The short went 12 pips below our planned exit, down to Friday’s low and the significant number of 14000. That, of course, means 1.4 dollars to the pound.

Trades today will in all likelihood be light being a USA holiday. Expect a trading range day, but occasionally on such holidays, a trend can form.

Our missed entry looks good on paper, but in reality, I would not have made the short. The spread at the time was double, which is typical for a no-news Monday morning. As I don’t pay the entry spread, I always like to achieve a limit entry, the subsequent pullback at the close of bar 2, and at two pips spread, would not have worked.

We wait patiently for the next opportunity.

Do we trade the news?

Finding the right currency pair to trade is key to success. We want the steady movement of the price but not unpredictability or volatility.

We also don’t want to move between currencies too often because, as a short-term trader, we get familiar with the flow (the news) of the money.

We traded GBP/USD up until Brexit and then moved to USD/JPY. Since the recent North Korean influence, we returned to GBP/USD.

In what detail do we follow the news of a currency? here’s an overview:

  • Since November 2015 the pound (GBP) has depreciated by over 15% against other currencies, mainly because of worries caused by last year’s Brexit referendum.
  • As the cost of imports has risen, inflation has jumped.
  • At the last release, Consumer-price inflation (CPI) was 3%, the joint-highest level since 2012.
  • But inflation may soon be on its way down again.
  • The annual rate of CPI has averaged almost exactly 2%, in line with the bank’s target.
  • Of note, as an open economy with a reasonably volatile currency, GBP is prone to short-term spikes in inflation.
  • The effect of the GBP plunge last year will, as reports suggest, soon fade.
  • Import prices will therefore not continue to rise sharply.
  • There has been a close correlation between movements in sterling and the “core” rate of inflation (a measure which excludes the most volatile components). If that correlation continues, then within a few months, reports suggest, the headline rate of inflation should near 2%, assuming sterling holds steady.
  • But the pound suffers whenever there is bad news about Brexit, and there is a fair chance that the months ahead will contain plenty of that.
  • But for now, at least, inflation looks more likely to fall than to rise much further.

The news is the first consideration on our pre-trade list. For a news release that we consider could provide volatility or unpredictability we are trade ‘flat’ a few minutes before the release of the news, and usually much earlier than that.

We have an awareness of the news and importantly the possible volatility a particular news release can provide.

But we do not:

  1. second, guess the effect of a news release, or
  2. trade with a specific trade direction in mind due to news or fundamental considerations.

Current short trades in Gold, Silver and Copper.

We have open trades short with Gold, Silver and Copper.

Our strategy here shows promise. The aggregate of these trades has seen us in the money by some £1,000. Soon followed by us being out of the money by about £900. The latter was a consequence of the last FOMC meeting and interest rate announcements.

Higher prices, however, allowed us to add to our short trades more favourably and, later, as the price dropped again, to break-even on our lower priced, original, trades.

Our open trades (taken from eleven days ago) currently stand at over £3,000 in profit reasonably distributed between each of the commodities. Early days, however,  as we hold through (as long as our premise remains the same) to somewhere near our targets.

The following is an update of our trade watch list for Slow Trader fund:

No change in – Gold, Silver, Copper and Crude Oil.

Instead of the S&P, I’ve included the 20+ Treasury Bond ETF.

Moreover, in preference to the currency EUR/USD we will take GBP/USD.