Thursday AM - GBP/JPY

Yesterday I placed a sell order for the Guppy which was filled at 150.49. Looking at the 3 hour chart below it still seems reasonable to me but this is one of the more volatile pairs and for sure. I had three reasons for going short at this level (three is usually what I look for), all of which showed up on the three hour chart.

1) That price was at the top of a short term range
2) It was a fib retracement of .618
3) The pair is in an overall downtrend and this would have been a brief rally

The pair went down to 149.61 but that wasn’t my profit target. Had I been awake when it did that perhaps I would have moved my stop to breakeven. I wasn’t.; I didn’t. What I could have done was set a sell order down around that level which would have lightened my short. This isn’t a bad idea if you’re holding overnight and I’ve done it in the past. Not this time, though. Now I’m slightly underwater and I have that sinking feeling…Dum-de-dum-dum.

I could comfort myself by saying “look at the upper shadows. Maybe it’s going to drop again…” Hope springs eternal and all that stuff, LOL. Well there are some upper shadows but look at that long lower shadow on the candle just before the last one. It gingerly dipped down and hastily retreated as though it was repulsed that it found itself at that level. “Hell no, I won’t go,” I think it must have said to itself. I know you shouldn’t anthropomorphize these sorts of things but hey, these are people trading prices up and down so doesn’t it have a human face after all?

Another concern I have at the moment is that Gann wrote that true strength shows when a commodity holds just above a half way point. It means that buying orders were placed at that level. This pair did hold and minor support has been established. Finally, the length of the second drop was less than the length of the first drop—it didn’t lose as much in price and it only took about 64% of the length of time of the first drop. It’s as though it wants to get this pesky downtrend over with.

So now I have three areas of concern.

Why not bail out now? I could. Before I do I will continue to analyze it and keep you posted. As of now, I have an intelligent, albeit slightly wide stop. If it retraces that far it will blow far past the .618 and provide strong evidence the downtrend is losing strength. It will also violate its downtrend line from earlier in the month where it has just made its third touch. But for now it is still in an overall downtrend. Here’s the three hour chart:

None of the above is a trade recommendation of course. This pair is especially volatile and should be avoided by most traders. Remember that trading involves substantial risk.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.