Sterling Falls On Warning Of Deep Recession

Sterling’s collapse continued as Bank of England governor, Swervyn Mervyn King warned that the UK was in “deep recession”. . This speech will be adapted by Monsieur Trichet some time in the future.

This morning I decided to blow some of my winnings to show newbies the difference between a strategic and an impulse trade (yep, I have done this before).

Trade 1-Impulse
To be fair, there was a bit more thought involved than just running after some Kylie lookalike with a bunch of flowers. I’m already a small short in Lloyds and thought it would be likely to suffer if the bears kicked off again. After the recent relief rally a small downturn looked to be coming into play and the shorter moving averages had crossed below the 50-MAV on the hourly chart.

So far, so good, but here’s the crazy bit; I made my decision and acted straight away, selling £5 at 87.6p. Now that’s fine if I’m running a large portfolio and making a decision for the long term. But as a trader it was daft; I sold just after the shares were marked down and spent the morning with an irritating red blot on my trading book. I’m relaxed about the trade, but could, and should, have got better terms by using the charts.

Trade 2-Strategic
Yesterday I was running a short bet on EURGBP, but it was starting to look like the tide was turning. I set a disciplined stop at £0.8805, which was taken out whilst I was being treated to lunch. A nuisance, but that’s part of trading, and I was damned glad of that stop as the price pushed onwards towards £0.89.

I don’t like the Euro, and I’m not sure why it’s doing so well, but the charts favoured it so today I looked to trade EURGBP on the long side. The overnight move had added 100 pips so I really wanted a pullback before jumping onboard. Early trade refused to give an inch so I used the break above the day’s high as a trigger.

Trading the breakout without a pullback is a riskier trade, but often there’s money to be made if you’re awake. I’m also far quicker in shutting the trade down if I don’t think the momentum’s there. I paid £0.8973 for a fiver, selling £3 at £0.8983 and a further £1 at £0.8998. Then, after reaching £0.9029 the price tailed off, hitting my stop at £0.8983.

A decent pullback gave me the chance to re-enter the trade, although I sacrificed a larger gain by opting to wait for confirmation from my signals. I paid £0.8963 for a fiver, taking profits at £0.8975 and finally £0.9003 when, again, support above the big figure diminished. The profits were steady rather, rather than exciting, but the trade had a plan and it worked.

Regulars will know that I’m usually bearish on equities (sometimes too bearish), but I’m not getting too carried away after yesterday’s move. Sure, it was good to see a sell-off, but really it wasn’t up to much. Prices are no-where near testing the uptrend line from November’s low, and today’s seen a bounce off the 21-day moving average. I added to my short bet last night, but closed out for a small gain ahead of the US close.

Finally, for those of you still confused by what the US stimulus package is all about:

This year, US taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China?
A. Shut up.

Below is some helpful advice on how to best help the U.S. economy by spending your stimulus check wisely:

If you spend that money at Wal-Mart, all the money will go to China.
If you spend it on gasoline it will go to the Arabs.
If you purchase a computer it will go to India.
If you purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala (unless you buy organic).
If you buy a car it will go to Japan.
If you purchase useless crap it will go to Taiwan.

And none of it will help the American economy.

We need to keep that money here in America. You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on prostitutes, beer and wine (domestic ONLY), funerals, weddings, or tattoos, since those are the only businesses still in the US.

Happy Trading

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