By Rob Colville on November 21, 2013 in
Keep that champagne on ice! Despite a great start to our USDSEK sell trade which we entered on the 18th (and got triggered into on the 18th), yesterday’s FOMC meeting forced an early exit from the trade.
Our USDSEK trade didn’t go the way we anticipated – or wanted. However, the technical argument for a sell was a convincing one to say the least…as technical traders we trade what we see – not what we think.
We did enjoying a splurge of profit after entering the trade and duly trailed our stoploss on the 19th November as it represented the second seller bar since the USDSEK sell set-up and we didn’t sustain a full hit and managed to preserve our capital. Yesterday’s outcome of the FOMC meeting was a crashing Euro and the US Dollar subsequently spiked up.
However, the trade’s outcome was a typical example of how news can sometimes go against us.
Put simply, we don’t care about news if the reward/risk makes sense. In the case of USDSEK, we had a reward potential of 8% (risking 2% on the trade) so can benefit from probabilities in our favour. No, I don’t have a crystal ball and have no idea what these policy wonks are discussing. Nor do I particularly care. All I do know is that the market can do three things in response to news:
If the news doesn’t cause the market to react then fine – we still have a great technical argument for our trade. So that leaves the remaining question: will news be for or against our trade? There is a 50% chance it will therefore agree or disagree with our trade. This is fine though!
You see, high reward trading and news is very much like flipping what side a coin is going to land on: heads and tails, but knowing that if you are proven right by the market, you stand to make a lot more than you stand to lose if you are proven wrong.
If news is in our favour then we stand to hit target and make 8% in a shorter space of time. If it goes against us then at least we know and have full control over what we could lose – a maximum of two percent. However, in our case, it was far less than this as we adjusted our stoploss, according to our strategy’s rules.