End of Summer Review
Before jumping into the end of summer review, I have two trades to highlight. They occurred on the GBP pairs involving a signal I've previously tried formulating but never actively sought out in my routine scans.
The first trade was on the EURGBP pair. Over on the daily timeframe, there's a very clear price spike around the end of September. I was able to fade this by taking a closer look on a lower timeframe.
Over on the 15-minute timeframe, there was a key price action to observe. After the initial spike, price pulled back and then continued to push higher. When price failed to do so, this became my signal. This sign of exhaustion indicates that price is overbought.
Near the end of September, the Sterling pound (GBP) suddenly sold off against all major pairs. What was the reason? I speculate it had to do with "Chancellor of the Exchequer Kwasi Kwarteng announced plans for debt-fueled tax cuts in Parliament."
Since I'm not a fundamentals trader, anticipating this news spike is pretty much impossible. However, that doesn't mean there aren't any technical setups I can formulate to trade the post-spike price action. This is exactly what I did.
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| EURGBP Daily |
The first trade was on the EURGBP pair. Over on the daily timeframe, there's a very clear price spike around the end of September. I was able to fade this by taking a closer look on a lower timeframe.
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| EURGBP 15-Minute |
Over on the 15-minute timeframe, there was a key price action to observe. After the initial spike, price pulled back and then continued to push higher. When price failed to do so, this became my signal. This sign of exhaustion indicates that price is overbought.
In turn, I entered with a 1.5R target and price eventually hit my take profit accordingly.
The next trade occurred on GBPJPY.
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| GBPJPY Daily |
Since GBP is the base currency in this case, the GBPJPY pair sold off. Likewise, I capitalized on a fade by dropping down to the 15 minute timeframe.
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| GBPJPY 15-Minute |
There's a similar and clean price action pattern that can be observed here. Price sold off and then pulled back around the end of September. After the pullback, sellers made another attempt to push the price lower.
This continuation failure became my opportunity to fade the spike. I targeted approximately 1.5R as well and price eventually hit my take profit too.
Trading a price spike is something I have considered. However, I never baked it into my legacy setups. The main reason is cost.
I can definitely anticipate spikes by tracking high-impact news releases and then monitoring the price action accordingly. However, this only works if there is actually a price spike. Otherwise, I don't have a directional bias in terms of supply-and-demand imbalance.
If you factor in cost, I believe that developing trading strategies around price spikes is inefficient. This is because spreads widen during high-impact events due to reduced liquidity. Fading opportunities where spreads normalize quickly are rare. The Non-Farm Payrolls occur 12 times each year. How many times are actually tradable based on supply-and-demand imbalance and manageable costs? Not many.
With that said, here's the end of summer performance review.
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| EdgeWonk Performance Center |
- The summer months were rough. I returned my profits and took on losses when the momentum signals I've identified failed to play out. The broader markets were more mean-reverting in nature.
- Despite the drawdown, I was able to refrain from revenge trading. I reduced my position sizes accordingly to follow a 1% risk model and 2% for structural moves.
- Things began to pick up around mid-September when I was able to spot structural shifts again. Instruments such as WTI (crude oil) and XAUUSD (gold) have contributed to the gains since they are upwards-biased.
My goal is to keep this momentum going. Performance wise, my peak was +23.68%. After a recent confluence of trades failed to play out in my favor, my performance is now +16.21%. If I can end the year beating the broader S&P 500, this will be a very good indication of my trading discipline. It may mean scaling up this account in the following year, but let's not get ahead of ourselves.