Welcome to my financial markets investing and trading blog. It’s here that I talk through the chart patterns I see in various markets, and the trades that I make. Today, I’m discussing a short trade that I made in the pair GBP/NZD.
My prior strategy wasn’t producing the results that I’m looking for, so I retooled it a bit. I’ve got a new way of finding viable pairs, and new patterns/price action that I’m going to focus on. This is the first trade using the new strategy, and I’ve already learned a lot. Here are my notes from my analysis that morning:
This looks like a fantastic candidate for the mean-reversion strategy. Price has been trending up for about a week and as of right now is in a bit of a base. The base is forming around the upper Bollinger Band and RSI is in overbought levels. There’s also a key level from back in late September around the same area price is hovering around now.
I’m expecting this to correct a bit from here, getting back to at least the 20 MA, so I think I’ll look to pull the trigger here. The only thing giving me pause right now is the fact that price is up on the day and is closer to the highs than the lows, so it may be difficult to find an entry today. I might end up just playing this 4h chart base, but that would be a longer-term play and I’d have to use a slightly larger position size.
Entry – 2.07717
I just put in an entry order and it’s immediately a tough one. I’m using a key level in the “middle” of price action as my stop loss in order to get a good R:R. We’ll see how it plays out.
Exit – 2.08058
Price only pushed down enough to trigger me in to the trade, then almost immediately rose enough to stop me out. There was another pair I liked that I didn’t trade because I didn’t see a tradable pattern, and I should’ve applied the same logic here. I’m not sure what pattern I played. I guess a bit of a bear-rally, but I didn’t set my stop above the rally.
Additionally, While price was bouncing off of recent highs and coming out of areas where price would be considered overbought, the overall trend was up not down. I never intentionally meant for this to be a counter-trend strategy.
So, maybe, mean-reversion isn’t the correct title for this strategy. I’m not sure what to call it, but I’m looking for price action where price has recently made a “correction”, and is coming out of overbought/oversold territory back into the direction of the overall trend.
Overall, this wasn’t a great trade, but I learned from it quickly so that’s a positive. I’m looking forward to practicing this strategy for the foreseeable future, because I believe it’s a winning one.
What did you think about this trade? let me know in the comments. I know I made some mistakes, but that’s trading. I’m working every day to eliminate as many mistakes as I can. Thanks for reading! And stay tuned for more financial market analysis and trades.