The 1st executed trade was made on the 18th of August as indicated on the 1st small blue triangle above the other two (2) subsequent trades done on separate intervals. Although, the GBP/USD continued its downward movement, the EUR/USD also continued to move higher. causing the reflection of a mirror image with each other. Buying the EUR/USD would not necessarily make sense unless it does penetrate the upper side of the resistance price above the 1.4330.

However, on the 21th day of August, market capitulation from later buyers have long settlement by selling throught he market on the way down forcing the price of the GBP/USD still lower but in a rapid action after touching a high prioce of 1.6623 and closing lower. This is reflected on the long tail up candle wick and closed lower for the day as shown on the 4 hourly chart on the GBP/USD. the full strength of the head and shoulders formation would end at the lower price level which was pre-calculated at around the 1.6180. the irony of the matter was that at the end of the trading week the low price of the GBP/USD was at 1.6153 a few pips shy of the target price levels.

The Average price has improved between the three positions and could easily be squared-off even on the price of the second trade. There are reasons and a strategy to do averaging but only when such the strategist has pin-pointed specific areas of entry and exit conditions once the prices moves to their retracement price.

And the current spread position on the Gold and Australian Dollar are also in place which will also be taken up in the next phase of this article. These are important issues that should be noted as we monitor the current market conditions.

The next opening week was a little more interesting in-spite of the sustaining floating loss but not as bad as it looks because our positions are based on ' a spread and net positioning on overall trades ' because of the proportionate size of our accounts. As this strategy like we mentioned also in our previous hubpage : ' Build EQUITY on Top of FX Investment ' makes it possible that any probable losses may be covered by the previous gains which was built through hedging and would simply pay-off for any subsequent losses on the trades.

Since the head and shoulders formation was well defined for the GBP/USD placing a 2nd trade as shown on the charts was logical since there was no indication of a break however it proved us wrong. so the worst case scenario was calculated as mentioned above that the target price was 1.6180. this was the third entry as our net position is not as bad since the other trades were in place to offset the probable loss on the GBP/USD trades. Tolerance and Risks are important to the equation while trading this market.

 In the previous hub on part 1, the answer to the questions as to what would have caused the downward movement on the GBP/USD while the EUR/USD continued to move higher is this. The two (2) charts on the GBP/JPY and the EUR/JPY were in fact the root of the cause as most of the major players and institutional banks were both using the strength of the Pound and the Euro to buy USD/JPY in anticipation of the election in Japan which resulted to the well anticipated strengthen of the Yen as to this writing which is now at the levels of 92.90 with a low at 92.55. As the Cross-traded GBP/JPY and EUR/JPY continued its lower directions because of the influential factor of this report.

As most banks and other interbank strategist / traders were actually building carry trades and using the Pound and the Euro to leverage borrow from the Yen because of the interest rate differential. In short, the GBP/USD was or is still being cross-traded heavily pushing it lower than its normal price behavior. Relatively, when something similar like this happens ; stay away from the market, but once caught then experience and attitude plays a greater role to get out of a predicament. Please refer to the charts on the GBP/JPY and the EUR/JPY Fig.3

While the Gold prices has always attracted investors to diverisfy FX investments to hedge against any adverse price fluctuations, the choice made could not have been better with the precious metal as we previously presented Hubpage : ' Gold - Currency of Last Resort '. And with a combination of the Australian Dollar as shown on the charts indicated hereon at the right hand side supported our strategy as well.

As an alternative position, when we recognized the discrepancy between the EUR/USD and the GBP/USD since the 18th of August, although the recognition pattern was already established since the 13th of August; it was not too late. but rather chose Gold as it stands by itself since oil prices were a little more tamed. The executed price of USD 942.50 as reflected on the chart as we held on tot he position until the 2nd trade made on the 25th of August at the price level of USD 944.45 on the way up has proven to be the right choice as reflected on the 4 hour chart shown also. This two positions alone offset whatever floating loss incurred on the GBP/USD as the prices touched the psychological price resistance of USD 960.00 /troy oz. Although, settled at the price level of USD 954.50 to close out all other positions was the main objective that relatively paid off at the closing of the week and month of August.

Although, the Australian Dollar position was taken on the same day as of the 25th of August to support whatever possible net gains that may be incurred to close out all positions at the end of the trading week of the August 28, 2009. The executed price on the AUD/USD was at 0.8347 and subsequently settled at the price of 0.8448 which was decent just for a short term trade in support of the other positions.

IN CONCLUSION :

The transactions have been very rigid as the market conditions changed every so often due to extra-ordinary cross-trades between major participants in the market. As the majority of the GBP/USD buyers have been boxed-in as the overwhelming long positions capitulated as the directional movement of the market prices headed lower compared with the Euro.

Although, these kind of situations do occur sometimes, but once you get caught in-between it is only practical to try to get out of the market alive and breathing. It takes quite a toll even for the veteran traders and strategist! With proper strategy and position maneuvering based on strategic planning it can only get better. But by having the appropriate amount that can be used in certain market conditions are equally important. Once the investors' choke then it is over! Properly allocating leverage to offset any probable loss as we also mentioned in one of our Hubpages on ' Leverage as an Equalizer to Risk ' takes a matter of discipline and practise.

The importance of presenting this case study is to familiarize investors and traders alike of the risks inherent in trading the FX market and that in certain circumstances; unexpected events occur and that is where all the possible angles needs to be in place even before it happens. We are all still in the process of learning as we continue to trade this lucrative yet volatile market. Pls. Just choose Wisely!