British Pound Hits Four Month High

Equities continued to climb the wall of worry like Spiderman on steroids. The S&P 500 (^GSPC) breached 900, sending the Dollar lower, which in turn helped gold gain a foothold above $900.

Not a good start to the week for someone short of equities; my short position in Lloyds Bank was stopped out for an irritating, but bearable loss this morning. I still have a small short in FTSE, which (again) is a sore reminder that I make money trading off the charts and lose it when I let a view get in the way.

Luckily I resisted the urge to add to my short position. Of course it’s tempting, and it might even be the smart move, but I’m holding fire in the face of a strong bullish advance. I won’t discuss equities too much here as I’m hoping to trot out a piece tomorrow.

The day hasn’t been all bad; I managed to return to what I do best; trading forex from the charts. An over-eager stop loss restricted my gains but I still locked in profits from two winning trades.

In both cases I bought GBPUSD, which is now looking close enough to a trend to feel comfortable with. My first trade was based on a cross through the 21-period moving average on the 5-minute chart (supported by an RSI above 50). I should have dealt at $1.5010, but was a bit slow and hit $1.5020, placing a stop at $1.4980.

5-minute chart

The trade worked and I part-closed my bet at $1.5050, bringing my stop up to break-even. With cash in the bag I set off on the school walk, popping into the gym on the way back. Things looked pretty good when I returned to see the market trading at $1.51 but, in a repeat of last week’s agony, I noticed that the big move had happened just after my stop had been hit.

But that’s OK; there’re always plenty of fresh opportunities in this game, and that’s what happened a few hours later. The GBPUSD price dropped below $1.51 but support at the 21-period MAV held firm. I waited for a rise above $1.51, which coincided with my trigger of 10-pips above the 21-period MAV, then paid $1.5102, but with a tight stop at $1.5080 (there was a risk of a more substantial pullback and I didn’t fancy losing the morning’s gains).

I used the subsequent rally to take some money off the table at $1.5122 and as the price continued to move higher I trailed my stop at a safe distance. The rally extended as far as $1.5160, but my stop loss policy meant I missed out on the peak and was closed out at $1.5122, the same level as my earlier sale.

Sterling hit a 4-month high today and, as long as equities remain flavour of the month, I’m looking for long Sterling trades. After breaking April’s high of $1.5066 (ish) GBPUSD should be looking to push up to January’s high of $1.5380. But I’d prefer to re-enter after a test of support at $1.50.

Further weakness in the Dollar has given gold a half-hearted bid, sending it back above the $900 level, though it failed to hold above the 50-day moving average.

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