the Great British Pound Rules of Engagement for 9/18/2014-9/19/2014
Joe Dinappoli once told our seminar … your either going to build the boat OR sail it. Choose one …what he was trying to say is your either going to TRADE or your going to put out research. No one side is better than the other …I’m of the mindset that in order to TRADE you need to put in place a game plan or strategy. But in the end, it’s about putting the gameplan at risk by deploying money….
Tomorrow might be a historical day and, then again, it might be a whole lot of nothing. If the Scott’s do vote to leave the UK well, it’s going to move EVERYTHING. As a spot FX trader I want to be ready for that .. so tonight I INTENTIONALLY erased EVERYTHING off my Pound vs USD chart and decided to work TOP – DOWN into a POTENTIAL gameplan to manage risk and TRADE WHAT YOU SEE.
Back in the day flying we came up w/ concepts of criteria for mission accomplishment: commit criteria, drop criteria, valid shot, abort criteria, skate or bonzai criteria , etc., etc. And, these were based on the Rules of Engagement (ROE) for any particular theater. So guess what, we are going to devise our ROE based on risk management:
By the end of this post, a game plan will have unfolded … let’s begin !!!
- ROE: Counting will begin approximately 2200 British Summer Time or 5PM est 09/17/2014. Due to monstrous potential for volatility w/in the FX market, a POSITION will NOT be put on until after 5:00 PM. Any position could be immediately wiped out if a monster reversal occurs. Then again, if your right the position could move in your direction amazingly well. But guess what … that’s gambling not trading. WAIT until the count is complete.
- ROE: expecting 1.5700-1.5800 to be major support and given the very oversold condition of the Pound on a daily basis, will be very cautious to “just short” the Pound. If we reference the monthly chart, we will see that current move down is very small in the big picture. there will be time
- ROE: if the market rallies then will look for 1.6390 but higher targets are more favorable to relieve the oversold condition. they are 1.6460 and 1.6540-1.6560.
- ROE: note, some of these levels are pretty far away and if you are a scalper then just book mark these levels. There is a distinct possibility that the Pound could move 200-300 pips in a matter of minutes. Unless you are a HFT w/ exceptional light speed MOST IF NOT ALL BROKERS will not get you the fill you want … however, after the initial burst, these levels become very important and therefore a gameplan can be worked.
Using RSI to see where the support and resistance levels have been … the big thing is notice that the 2007 – 2014 time frame we are seeing a grid shift in that the we busted thru support and now, have failed at the lowest level in the history of the chart. My mindset is bearish and therefore believe on a weekly/daily timeframe (key) any rally should be faded. Other than that, no specific and/or tactical ROE aspects to consider. Analysis only …
Again, using the weekly RSI, note that we are oversold but “no divergence” is present. Can still go lower, but notice the dotted blue line and you’ll see the polarity principle at work. if we break that dotted blue line price “should” vacuum to the 1.5756 level. Also, the red 90 degree angle is something for us to consider. but 1.5756 is in the way, right now.
note on the above – we have a .382, .5, .618 retracement all coming in right in/around/on top of our 1.5775. THIS SHOULD BE SUPPORT.
ROE: as we approach this level, if during a sell-off DO NOT SHORT in/around this level as it could be major support ….
Note, if we can rally look for those RED LINES to short against. Also, note we are still deeply oversold on a daily basis.
note the geometry from today’s move … hit the high and the red X is showing the gap from Sunday (very very rare in the spot FX world) has been closed. Note upper targets as shown by the light blue.