The Adventures of a Trader in the Forex Land (5) – More Japan – UK Correlations

twister-sister-gbp-jpy-minutes-graph-april-22-2010 Or (if you want) miss-correlations. As all of your guru traders will say, in the forex trading you learn for your lifetime. And when you think you saw them all, something   comes and takes away all your confidence (and hopefully not your profits, especially when you have the risk management tools in place).

What happened? I decided to test today on the MetaTrader 4 (MT4) platform the buy stop and the buy limit orders on the “twister sister” or the GBP/JPY pair. And the results were quite interesting.

So what happened? I placed from the previous day a buy limit order on the GBP/JPY, on the assumption that the yen currency will devaluate a bit whilst the pound will be stable. This was based on the relatively mild-to-bad incoming economic news: the trade balance of Japan was on the larger side of the forecasts, whilst the GBP news (public sector borrowing, retail sales and preliminary mortgage approvals, to name just a few) should have been better. And so they were.

So my pending buy order was triggered at 143.12 GBP/JPY. And then nothing. I was a bit upset – why don’t the markets recover? Why does it not resume coming back to the normal level? After all, my fundamentals analysis was pretty sharp, right?

And then I looked again at the news. Gosh, Greece again. I suppose this is the reason why GBP failed to grow back to the trading levels before. The Greek budget deficit worsened so everybody was betting on more stable currencies, preferably as far as possible from the EU. And I am still stuck with buying some currency which 5 hours later did not come back to some decent profitable levels.

I am now wondering what next. And I hope I will not wonder very long before I can post some profits :)).

After this advancement into the trading jungle, let’s lay out a couple of definitions for beginners (taken from our doitinvest.com dictionary):

Buy stop order = a pending (waiting) order to buy a security or an investment vehicle which is triggered at a quotation above the current trading price level. In other words, the trader expects the instrument price to exceed a certain (higher) level before it will grow further. This is often associated with the traded instrument breaking a so-called resistance level, which once broken will be exceeded easily.

Buy limit order = also a pending order, to buy a security, but at a price below the current level.

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