The perfect storm may be forming!

I mentioned the other day that an opportunity could be arrising as a result of the credit crisis. For the last few weeks we have pretty much been going sideways save for the euro/usd. The forecast signalled a change the other day in the gbp/usd and today the stars aligned and allowed for a great day for those who were short in the pound and could go deeper into profit.

In fact, I bent my discipline rule just a little as I was too slow to put a trailing stop on the short, and jumped back in while still protecting the original trade. You will also notice that I increased my lot size by about 25% while still maintaining a safe leverage.

So what was the perfect storm?

1) A thinly traded Asian market due to a holiday in Japan
2) A Forecast that showed a Very Stong downward bias in the gbp/usd
3) A HUGE news event, that complimented our short position in the gbp/usd. ( A perceived run on Northern Rock in England)

If you follow the blog I have mentioned many times that you use the Forecasts as the basis of a solid trading strategy. We trade in discipline when we see an opportunity, and wait patiently to hitch a ride on a runaway train. That train arrived last night and I hopped on.

Many times there is a ripple effect from the Asian markets which slips into the Euro Markets then slides into North America. I would have bet the farm last night (not advisable) that when the pound dropped in Asia (with the Japanese Markets closed) that it would vibrate around the world.

I did not do anything out of the ordinary in my approach. I had my charts open when the Forecasts came out. I saw a great strength in the gbp/usd which gave me confidence. Movement was brisk early on, and then I glanced at a headline on my news feed. The perfect storm in my mind.

Now we tighten up our positions and see what the day brings. Allthough expected news events are priced into the charts, there should be a huge spike on Tuesday when the US FED makes a rate anouncement. If the Forecast allow for a good, quick and safe trade I will take a conservative approach and try and be out before the announcement. Then we can take our cues from the Forecasts.

Trade Safe!