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CFDs are complex instruments. 72% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Trade of the week: long GBP/USD

Chris Beauchamp looks at going long GBP/USD as it recovers from recent weakness, with a stop at $1.295 to allow for some short-term volatility.

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(Partial video transcript)

Previous NY cotton trading outcome

Chris Beauchamp: Hello and welcome to “Trade of the week” for the week beginning Monday the 21st of October. Each week, we look at a key market to trade and the risk management around that trade. We'll look back first to last week's “Trade of the week”, when IG senior analyst, Axel Rudolph, went short New York cotton down here at about 7269.

Now his stop is up here at the 7558 above these previous highs from September and early October. So we're still well away from the stop. As you can see, the price has actually recovered over the last few days. So maybe one to watch there. As I say, a long way away from the stop. So our risk management is in place and nothing to worry about too much. But the moment, just caught out by the sudden rally in cotton prices over the previous four days.

This week's trading opportunity

Turning to this week, looking at, the trade for, as I say, the week beginning Monday the 21st of October. And this one I think we're going to look at is long cable, long the British pound against the US dollar (GBP/USD).

An interesting one because you've had this steady uptrend since April really when the pound was trending all the way down at 1,2370 or so against the US dollar and a series of higher lows over the course of time since then. That's been interrupted to an extent over the past month because from being at 134, in late September, expectations of the UK rate have knocked this back right down towards, in fact, briefly below 130, as we saw on Wednesday and Thursday.

It has, however, since recovered. And crucially, we also have positive divergence on daily stochastic. This is where you get the price making a new, lower low. But the stochastics making a new, higher low, which is often viewed, can be viewed as a positive sign, for further upside momentum. So, we're looking actually to go long the pound against the US dollar, assuming that this uptrend, does revive after what has been an impressive pullback from the late September highs.

So we're looking to go long in the pound around current levels at 1,3027. Now, the stop - of course the crucial thing to watch because you're going to put it down at 1,2950. So roughly just below, a shade below the 100-day moving average here, and well below these lows from last Wednesday and Thursday. Just to say, as I like to say, give it some room to breathe if we see some volatility. This is the key thing with stock placement. We're putting it down here so that we know if we get down here and the stop is hit, the trade idea is invalidated. Not putting anywhere closer so that get caught out by volatility. So, that's where we're going up our stop down at 1,2950.

So that's IG's “Trade the week” for the week beginning Monday the 21st of October. We're going long to pound against the US dollar (long GBP/USD), around the 130 level with our stop at 1,2950.


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