Low Risk, High Reward Trading Experiment

Tuesday March 20 at 3:45 ET

Trade Experiment #359 Sell GBP/USD at 1.9490

Stop is 1.9541

Target is 1.9390

Risk is 55 pips

Reward is 96 pips

RRR is 1.7

Confidence level: good
Accuracy: good
Reward / Risk Ratio : relatively poor

For research purposes only.

Wave hypothesis: Small Wave C down of a downwards Wave 4.

p.s. - The progress of this rather non-strategic trade (poor RRR) towards its probable target was interrupted by the economic data releases out of the UK today which added to the chance of an imminent BOE interest rate hike, which in turn sent GBP/USD into a fast upwards, strong move of 193 pips size (so far). Before this happened, however, GBP/USD fell to 1.9431, which gave us a chance to move up our stop to a Break Even level.

Tuesday March 20 at 4:15 ET

Trade Experiment #360 Sell GBP/CHF at 2.3661

Stop is 2.3741

Target is 2.3400

Risk is 95 pips

Reward is 244 pips

RRR is 2.6

Confidence level: good
Accuracy: good
Reward / Risk Ratio : relatively poor

For research purposes only.

Wave hypothesis: Small Wave C down of a downwards Wave B of a downwards Wave 4.

p.s - The price of GBP/CHF dropped 31 pips to 2.3736 at 7:17 ET, allowing us to move our stop to Break Even. Another rise to 2.3790 ensued, but without a EW completion pattern. There was a drop and another rise to exactly the same price. This second top had a viable EW completion pattern. Also, the time of day favored a reversal. Being a double top, this would be a second re-entry opportunity price.

Re-enter Trade Experiment #359A Sell GBP/USD at 1.9564

The GBP/USD short trade progressed downwards about 55 pips, allowing our stop to be adjusted to Break Even according to our new "No Risk, All Reward Trading Strategy". A rapid spike possibly related to some slightly better than expected UK inflation data then caused the price to rise to 1.9564, hitting our adjusted B/E stop and providing a re-entry opportunity at another high probability reversal value.

Stop is 1.9626

Target is 1.9390

Risk is 66 pips

Reward is 170 pips

RRR is 2.6

Economic data:

5:30 GBP CPI y/y http://www.forexfactory.com/images/m...act_medium.gif 2.8% 2.7% 2.7%
5:30 GBP Core CPI y/y http://www.forexfactory.com/images/m...mpact_high.gif 1.7% 1.7% 1.6%
5:30 GBP RPI y/y http://www.forexfactory.com/images/m...impact_low.gif 4.6% 4.3% 4.2%
5:30 GBP Public Sector Net Borrowing http://www.forexfactory.com/images/m...act_medium.gif 1.9B 2.5B -10.7Br
5:30 GBP M4 Money Supply m/m http://www.forexfactory.com/images/m...impact_low.gif 0.9% 0.8% 0.9%

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Previous trade experiment:

Tuesday March 20 at 3:45 ET
Trade Experiment #359 Sell GBP/USD at 1.9490
Stop is 1.9541
Target is 1.9390
Risk is 55 pips
Reward is 96 pips
RRR is 1.7

Confidence level: good
Accuracy: good
Reward / Risk Ratio : relatively poor

For research purposes only.

Wave hypothesis: Small Wave C down of a downwards Wave 4.

Tuesday March 20 at 6:45 ET

Re-enter Trade Experiment #360A Sell GBP/CHF at 2.3767

The GBP/CHF short trade progressed downwards about 80 pips, allowing our stop to be adjusted to Break Even according to our new "No Risk, All Reward Trading Strategy". A rapid spike possibly related to some slightly better than expected UK inflation data then caused the price to rise to 2.3767, hitting our adjusted B/E stop and providing a re-entry opportunity at another high probability reversal value.

Stop is 1.3821

Target is 1.9390

Risk is 66 pips

Reward is 365 pips

RRR is 5.5

Wave hypothesis: Wave 5.

p.s - The price of GBP/CHF dropped 31 pips to 2.3736 at 7:17 ET, allowing us to move our stop to Break Even. Another rise to 2.3790 ensued, but without a EW completion pattern. There was a drop and another rise to exactly the same price. This second top had a viable EW completion pattern. Also, the time of day favored a reversal. Being a double top, this would be a second re-entry opportunity price. __________________________________________________ ____
__________________________________________________ ____

Previous trade experiment:

Tuesday March 20 at 4:15 ET
Trade Experiment #360 Sell GBP/CHF at 2.3661
Stop is 2.3741
Target is 2.3400
Risk is 95 pips
Reward is 244 pips
RRR is 2.6

Confidence level: good
Accuracy: good
Reward / Risk Ratio : relatively poor

For research purposes only.

Wave hypothesis: Small Wave C down of a downwards Wave B of a downwards Wave 4.

Tuesday 3/20

Tentative JPY BOJ Governor Fukui Speaks
3:00 EUR German PPI m/m 0.3% 0.3% 0.0%

4:15 CHF PPI m/m 0.3% 0.1% -0.2%

5:30 GBP CPI y/y 2.8% 2.7% 2.7%
5:30 GBP Core CPI y/y http://www.forexfactory.com/images/m...mpact_high.gif 1.7% 1.7% 1.6%
5:30 GBP RPI y/y 4.6% 4.3% 4.2%
5:30 GBP Public Sector Net Borrowing 1.9B 2.5B -10.7Br
5:30 GBP M4 Money Supply m/m 0.9% 0.8% 0.9%

7:00 CAD CPI m/m http://www.forexfactory.com/images/m...act_medium.gif 0.7% 0.3% 0.1%
7:00 CAD Core CPI m/m http://www.forexfactory.com/images/m...mpact_high.gif 0.5% 0.2% 0.1%

8:30 USD Housing Starts http://www.forexfactory.com/images/m...act_medium.gif 1.53M 1.44M 1.40Mr
8:30 USD Building Permits 1.53M 1.55M 1.57Mr

All Day JPY Holiday: Vernal Equinox

19:30 AUD WMI Leading Index m/m 0.6%
20:30 AUD New Motor Vehicle Sales m/m 5.3%

GBP/USD extended gains against the dollar after this morning's stronger-than-expected UK inflation data raised expectations that the Bank of England (BoE) will raise interest rates soon, possibly as early as April. Figures this morning showed the key UK annual CPI inflation rate unexpectedly rose to 2.8 pct in February from 2.7 pct in January, well above the central bank's target rate of 2.0 pct. In addition, a sharp rise in the RPI rate, which is often used in pay deals, to a fifteen and a half year high of 4.6 pct from 4.2 pct in January will raise concerns among UK rate-setters about high levels of wage inflation. Mark Miller at HBOS said a quarter-point hike to 5.50 pct may come as soon as April although May is a better bet since the BoE will release its next set of projections for growth and inflation then. Felix Homogratus said, "If the year over year CPI comes out at 3.0% or higher, it would match the highest reading that we had just over a month ago, and GBP/USD may possibly go up by around 100 pips or more in the first 30 minutes."

The US housing starts for the month of February came in at 1.53M, well above the analysts' estimates of 1.44M, boosting the treasury yields across the board and supporting the recent dollar gains. Prior figure was also revised slightly to the upside from 1.399M to 1.408M.

USD/CAD dropped 185 pips (from 1.1785 to 1.1600) on a conjunction of technical and fundamental factors. Felix Homogratus said, "If Canadian core CPI comes out at 0.6% or higher [it came out at .5%], it would at least match the highest reading back in May of 2006, and would probably be good for the Canadian dollar, and USD/CAD may possibly drop by 50 pips or more in the first 30 minutes of the report."

Higher gasoline prices and rising housing costs helped to push Canada’s annual inflation rate sharply higher in February. The February rate jumped to 2.0 per cent — up 0.8 percentage points from January’s rate — and much higher than economists had expected. That’s the biggest one-month gain since September 2005, when Hurricane Katrina led to big increases in gas pump prices. Consumer prices rose by 0.7 per cent in February alone. Gasoline prices were a big reason for that increase, as pump prices soared by almost 10 per cent in Ontario last month alone. "Production interruption in some Ontario and Quebec refineries led to the temporary closure of some gas stations in those provinces because of the reduced availability of stock," Statistics Canada said.
The core rate of inflation, which strips out the eight most volatile items in the consumer price index, also rose. It now stands at an annual rate of 2.4 per cent, up from January’s 2.1 per cent.

USD/CAD may now retrace to about 1.1680, which, depending on the wave pattern at the time, may represent a good short opportunity to ride this new trend down.

Reports emerged that China plans to sell a small amount of foreign currency reserves. Analysts cited a report that emerged this afternoon quoting People's Bank of China governor Zhou Xiaochuan as saying that China will sell a small amount of reserves and not accumulate any more. 'Comments from Chinese Central Bank official Zhou about reserves sent the greenback into offered mode,' said Colin Clarkson at Thomson IFR Markets. A huge amount of China's reserves are in US Treasuries, despite moves towards diversification away from the dollar. Reaction has been muted, however, with analysts sceptical that the report may be old or that Zhou may have been misquoted.

Trade Experiment #361 Sell EUR/USD at 1.3315

Stop is 1.3351

Target is 1.3250

Risk is 38 pips

Reward is 63 pips

RRR is 1.7

Confidence level: good
Accuracy: good
Reward / Risk Ratio : relatively poor

Wave hypothesis: Wave C down of Wave 4.

your target should be 1.3250 not 1.9250 ?

Yes, thanks, KipperII. This is just a little experiment. The more strategic trade opportunity for EUR/USD will be going long at the bottom of Wave 4, providing a much better Reward / Risk ratio.

Wednesday 3/21

3:15 CHF Trade Balance 1.38B 1.01B 1.29B
4:00 EUR ECB President Trichet Speaks http://www.forexfactory.com/images/m...act_medium.gif
5:30 GBP BOE Meeting Minutes http://www.forexfactory.com/images/m...mpact_high.gif 8-1 7-2 7-2
8:30 CAD Retail Sales m/m http://www.forexfactory.com/images/m...act_medium.gif -0.2% -0.2% 2.2%r
8:30 CAD Core Retail Sales m/m http://www.forexfactory.com/images/m...mpact_high.gif 0.3% 0.4% 1.9%r
8:30 CAD Leading Indicators m/m 0.7% 0.5% 0.5%
8:30 GBP Annual Budget Release
10:30 USD Crude Oil Inventories 4M 1.1M
14:15 USD Interest Rate Statement http://www.forexfactory.com/images/m...mpact_high.gif 5.25% 5.25% 5.25%
19:50 JPY Trade Balance (p) 1.0T 0.7T 0.0T
19:50 JPY BSI Large Manufacturing Conditions q/q 7.1

The Federal Open Market Committee began its two-day meeting that concludes today. Dealers are expecting the FOMC to announce after the meeting that it's keeping rates unchanged at 5.25%. Most awaited, the post-meeting statement would help traders believe it may include wording about housing market woes, which could push the Dollar down against the all majors. This would be a reversal from the FOMC's last statement when it noted prematurely “signs of stabilization” in the housing sector.

BoJ's expected rate decision with lighter equity market had encouraged investors to jump back into carry trades positions, helping to boost the Dollar and the Euro against the Japanese currency.
Meanwhile, Sterling and Canadian Dollar rallied Tuesday following stronger-than-expected inflation reports.

The dollar lost ground against the majors on Wednesday after the FOMC unexpectedly changed the tone of today's policy statement. The greenback quickly slumped to fresh multi-year lows just shy of 1.34 versus the euro, and multi-month lows around 1.97 against the sterling as market participants began discounting the prospects for a Fed rate cut over the coming months.

As anticipated though, the Fed left its benchmark lending-rate unchanged at 5.25% when it announced its decision in the afternoon. However, the more significant and market moving news was to be found in its subsequent policy statement. The key omission from today's statement that moved the markets was, "The extent and timing of any additional firming that may be needed.will depend on the outlook for both inflation and economic growth". The moderation in the Fed's hawkish tone prompted speculation of when a rate cut would materialize. Further, it acknowledged softening of growth fundamentals in its shift away from January's statement, which said, "recent indicators have suggested somewhat firmer economic growth". Instead, the FOMC noted that recent indicators were mixed and highlighted the ongoing 'adjustment' in the housing sector.

Sterling will be vulnerable to significant and possibly heavy selling pressure if there is a second successive monthly drop in retail sales on Thursday while a monthly figure above 1.0% would be Sterling positive.

Itme:

Could you please give your valuable insights on this discussion, please?

http://www.forexfactory.com/showthre...d=1#post250046

I would very, very much appreciate your thoughts on the matter.

Thanks.

Peter.

Please follow the above link to read my answer to the question. Thanks for inviting me to comment, Peter.

EWI analysts think that, "the current setback from near 1.99 is corrective." Which means that it may be a little while before the pound gets going – despite the widespread expectations that the U.K.'s rising interest rates should keep the fire burning under the GBP/USD.

DailyFX analysts said:

GBPUSD – The rally from 1.9213 to 1.9613 is either a 3rd wave advance or a C wave advance. Since the rally is a 161.8% extension of 1.9183-1.9436 / 1.9213, we are favoring the 3rd wave scenario. This means that a correction (likely underway right now) will be a 4th wave and give way to a new high above 1.9654 with focus on 1.9675. This morning’s low at 1.9556 is just above the 23.6% of 1.9213-1.9654 at 1.9551. We are looking for this low to hold. If it fails, then potential support is not until the 38.2% at 1.9486.

http://www.dailyfx.com/export/sites/...1-07techs4.gif

hmm, do you believe that?

well we have seen the reversal and having now a high of 1.9650. my estimated termination point for wave-c was broken, unfortunately, but i am still not convinced that that we are in a wave-5 sequence.

i was thinking about being in a final upwards wave too, but i cant get the correct wave-1 of this 1-5 sequence upwards. i thought that waves 1 and 4 cannot overlap in an impulse-wave but they do in the chart picture above, i mean the first wave-1.

am i completely wrong?

It's possible if the top of subwave (orange) 1 was exactly like what you posted before as wave 3. Like in this chart below.
However from the chart above, their wave (i) is placed wrongly I guess, it should be at 7 Mar top not 12 Mar top, don't you think so? If they want to put label at that spot, it should be wave (a) or a lettered wave.

it´s really hard to predict where we are going now, especially with the news coming in 15 minutes.

i think this will give us the final puzzle part of this monster.

Today 02:19pm
FOMC Statement analysis: Fed drops tightening bias but still expects economy to expand at a moderate pace

- says adjustment in housing sector is ongoing v. had indicated some signs of stabilization last time
- says core inflation somewhat elevated v. had said that core inflation improved modestly last time
- continues to believe that primary policy concern is inflation risk
- still indicating as data dependent

The US Federal Reserve left interest rates on hold at 5.25%, but switched to a more neutral stance on future policy. The statement referred to inflation risks, but also stated that these should moderate over time and slightly weakened the inflation concerns.

The Fed still expects moderate growth, but the shift to a more balanced stance will reinforce market expectations of an interest rate cut within the next 2-3 Fed meetings. There was no specific mention of the mortgage sector, but the Fed did have concerns over the housing market.

The statement is a negative factor for the dollar, but losses should be measured given that markets were already pricing in two interest rate cuts this year and the Fed has retained inflation warnings.

Trade Experiment #361A Sell EUR/USD at 1.3382

Stop is 1.3416

Move stop to Break Even at 1.3360.

Target is 1.3100

Risk is 36 pips

Reward is 280 pips

RRR is 7.8

Confidence level: good
Accuracy: good
Reward / Risk Ratio : good

Wave hypothesis: Wave C down
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Previous Trade Experiment:

(Stopped out at Break Even)

Trade Experiment #361 Sell EUR/USD at 1.3315
Stop is 1.3351
Target is 1.3250
Risk is 38 pips
Reward is 63 pips
RRR is 1.7
Confidence level: good
Accuracy: good
Reward / Risk Ratio : relatively poor

Wave hypothesis: Wave C down of Wave 4.

Trade Experiment #362 Sell GBP/JPY at 231.45

Stop is 232.15

(Move stop to Break Even when price moves to 231.15)

Target is min. 229.00

Risk is 89 pips

Reward is min. 236 pips

RRR is min. 2.7

Confidence level: fair
Accuracy: good
Reward / Risk Ratio : fair

Wave hypothesis: Wave 5 down

Because of the one minute wave count, it is advisable to exit Trade Experiment #361A Sell EUR/USD at 1.3385 and re-enter the short position at 1.3420. There isn't a clear and unequivocal 5 wave pattern, so there is a chance of a rise to a new high which could take out our stop.

Thursday 3/22

5:30 GBP Retail Sales m/m http://www.forexfactory.com/images/m...mpact_high.gif 1.4% 0.6% -1.8%
6:00 EUR Trade Balance 1.3B 2.3B 2.0/0.7B
6:00 EUR Industrial New Orders m/m http://www.forexfactory.com/images/m...act_medium.gif -.2% -1.0% 2.8%
7:00 GBP CBI Industrial Trends Orders 8 6 4
8:30 USD Unemployment Claims 316K 320K 320Kr
9:20 USD Fed Chairman Bernanke Speaks http://www.forexfactory.com/images/m...mpact_high.gif
10:00 USD Leading Index m/m -.5% -0.3% -0.3%r
12:00 USD Fed Governor Kroszner Speaks http://www.forexfactory.com/images/m...act_medium.gif
13:30 USD Fed Governor Kohn Speaks http://www.forexfactory.com/images/m...act_medium.gif
19:00 AUD Leading Index m/m 0.2% 0.2%
19:50 JPY All Industries Activity Index m/m 0.7% 0.7% 0.0%

The U.K. last month's January retail sales data was much weaker than expected with a 1.8% monthly decline. The Bank of England, in the latest minutes, stated that there is some evidence of a slowdown in consumer spending, but the latest CBI survey was firm and the housing data remained strong which should help underpin consumer spending. A modest monthly recovery is realistic and a figure in 0.4 – 0.8% range should not have a big impact. Sales also fell sharply in January 2006 before recording a weak recovery in February and generally mild weather conditions are liable to dampen sales this year. Sterling will be vulnerable to significant and possibly heavy selling pressure if there is a second successive monthly drop in sales while a monthly figure above 1.0% would be Sterling positive.

The actual UK retail sales data came in at +1.4%, rebuilding confidence in the UK consumer as an engine of growth this year. This better than expected figure caused a 54 pip upwards spike in 4 minutes to a new GBP/USD 30 day high of 1.9724, followed by a fall to 1.9613. The data 'underpins our view that rates are likely to rise over the coming months,' probably in May, said Philip Shaw at Investec. UK manufacturing orders rose at a 12-year high, with output expectations also remaining strong.

The euro remained largely unaffected by mixed data this morning, which showed a smaller-than-expected decrease in industrial orders as well as an worsening in external trade to give a deficit in January compared with a small surplus in December.

The market reacted modestly to the US data released. The weekly jobless claims reduced from 318k to 316k, better than the estimate of 324k. The Conference Board’s leading indicators fell 0.5% in February, down from a revised 0.3% decline in the previous month. A possible downturn in the US economy is expected to start with the housing market, where some jitters have already been experienced. On that backdrop, tomorrow's home sales data will be closely watched.