Caught on a Fakeout – Trading the Currency Markets
I entered long the GBPAUD currency the other evening. I had placed my order 10 pips from the previous high and was expecting quite a big move towards the upside. When my entry came, it went a few pips up and then went down. I had my stop below the last trend reversal pattern. Over the next couple of days, not much happened.. it remained in the range and I thought that since the price action preceding this was up, there was more chance of it moving north.
When markets are stuck in a range, my view is that it’s like the coiling of a spring.. one way or another (hopefully north), it’s going to pop and make a good few hundred points.
However, on the third day, you can see how the market fell sharply, taking out the stops (including mine), and then rallying the width of the range at the top and popping through. I thought it was going to saily from there but as you can see from my chart, it’s move back into the range…. hmm, best to leave it alone from now.
It’s also my first time trading this currency pair so I’m not that confident trading it. I actually went in half sized lots trading this… phew!
I am glad you got out with only minimum damage. I have been actively trading this pair for over a year now and in this current downtrend, I started selling around 1.6110. According to my charts, I see this pair heading lower in a descending trend channel and my long term target is a retest of the February lows (sub 1.4600) with a possible new low just south of 1.4500. This is a very volatile pair and can make big moves in the blink of an eye. An even more volatile pair that moves very similar is GBPNZD, one I am also trading. Started selling that one just above 2.0900.