Coming into the RBA rate decision, the media was somewhat noisy with the great majority believing that the RBA will not cut rates. Then again, there are extremist who believe that the RBA likes to catch the market off guard. The RBA dropped rates twice in 2015 catching the market by surprise. Then again, somehow, I don’t have a whole lot of confidence in this event, however, as a trader we also need to be there.
Would this have been the case as well?
Instead of my usual straddle, I decided to just place a Stop if Offered on the downside with the following details: –
AUDUSD – 0.7150 with spot at 0.7172 and SL at 0.7170
As it turned out, the market was wild!!!!!!!! RBA kept rates on hold and said that it will continue to maintain an accommodative policy.
Within 15 seconds, the AUD gapped down to 0.7110 and then gapped up to 0.7205 and settled at 0.7163.
So my trade got triggered at 0.7150 and then got stopped out at 0.7170.
It’s 45 minutes later now at 12:15pm and the AUD is at 0.7204.
In hindsight, it was a fortunate thing that I only did one leg and not the full straddle otherwise I would have been triggered and stopped out on both trades!!!
So the moral of the story is? Nothing is guaranteed and nothing is for sure, even the best strategy can be whacked by the market. What is important is discipline and risk management; manage your trade size and please please place stop losses.
Ok for this trade I made a trading loss of 20bps, but if I had not placed a stop loss, I would not be staring at a 50bps loss.
Later this week it’s BOE, what can we expect?
The Panthenon Investment Group 