The Great British Pound has turned beautifully for us toward the direction of the Trend Line we talked about in yesterday’s End of Day Video Analysis.
Of course, it wouldn’t be fair to mention that this works nicely for this GBP/CHF trade potential while beating up our other two trades:
Both the AUD/USD and the EUR/GBP were smacked upside the head in today’s big move.
Depending on if you used the Double Trend Trap trade management rules or not, you may have taken a break-even trade or a small loss; however, if you were stubborn like I was and waiting for the big win, you took a FULL loss.
All the more reason that I’d love for this GBP/CHF trade to set up as expected and work out as expected.
No matter how you look at the GBP/CHF, one would have to agree the overall movement is screaming UP!
Here, I have several lines drawn on a zoomed out daily chart. The bottom two blue lines represent the longer term shallow trend we have been developing for over a year. The top blue line shows the typical “pace” of the higher highs in the trend, the red line shows the steep angle of the most recent Up-Leg in the trend and the small orange horizontal line shows the current price testing a recent high.
Everything leads to the idea that price should want to continue upward in the near future.
Let’s take a more zoomed in look:
Here we see 3 potential areas that price may go to before making a new high including the current price. These are some levels to keep an eye on if you are looking to ride the GBP/CHF to its next high and as I mentioned in yesterday’s analysis, my favorite spot is our steep Red trendline.
The reason I like this area is because it represents a nice balance between a deep enough correction and not too deep of a correction.
What that means is that price has gone far enough against the current trend to expect a continuation to the upside AND to create enough space for a high Reward to Risk trade; but it hasn’t gone so far that the momentum has shifted totally to the downside and created a situation where the overall movement could appear to be heading downward.
In the case of the GBP/CHF here, because price has not reached a higher high in the overall trend (the large blue channel), a move back to the bottom trend line could indicate that this trend is over and price may be breaking to new lows. Often times, an early indication of the end of a trend is simply when it fails to make a new high during a steep leg that appears to be a continuation move.
Okay, enough of the technical babble… How do we trade it?
Well, my plan is still the same on this pair. I love that we got some momentum headed opposite the trend, but we still need more patience.
If price can continue to move toward our main trend line, we’ll have an opportunity to buy at a great price AND look for an exceptional Reward to Risk trade. Perhaps even enough to turn this miserable month into a profitable one
Below is my sketch of an ideal trade scenario using the 1 Hour chart:
In this BEAUTIFUL sketch of price action, you can see that my ideal situation would be for price to move down while respecting important levels and then slow down near the 61.8 Fib/Trendline area.
This would give us the confidence that price intends on moving up from here and we could place a buy trade with a relatively tight stop.
The blue circle would represent the target area though this is a situation where, because of the strong trend, you could use a trailing stop in order to try to maximize your profit even more. For me, the high reward/risk trade that SHOULD occur is enough, so I will stick with a hard target near the recent highs.
That’s it for my end of day focus this Wednesday; thoughts and questions and hateful remarks are welcome
Oh, and Follow me on Twitter in case I have a moment of brilliance that you don’t want to miss.
Latest posts by NathanTucci (see all)
- Why is a Trading Room Valuable? - February 12, 2015
- USDJPY and EURUSD: Post Non-Farm Trading Update - February 6, 2015
- What to do when your Retirement is not big enough for you to Retire… - February 4, 2015
Winner’s Edge Trading, as seen on: