The Daily Trade – Day 55

Filed under: Learn Forex Trading |

Trade Number 55 – GBP/USD 4-Hour Chart

 

Figure 1.

There was a nice trade on the GBP/USD pair on 22nd September, which I did not get a chance to tell you about, as there were so many good trade setups at the end of last month. If you look at Figure 1, you will see that there was an excellent area of support which had held firmly on two significant occasions, first at the end of July 2010 and then again at the turn of the year. Price once again approached this level at the end of last month, and this also happened to be a 61.8% Fibonacci retracement level – adding a good deal of confluence to this level. When there is a confluence of this nature at a level such as this, we should be looking out for price action signals to confirm our suspicions that the market might have a reaction.

Figure 2.

 

If you now look at Figure 2, and this is the 4-hour chart on the GBP/USD pair, you will see that a lovely bullish engulfing pattern emerged right at this level, which would have been a good time to take a long trade with a risk reward of 1:2 (at a minimum). I would have in fact taken a risk reward of 1:3, as there was a lot of room for price to move into before the next obvious resistance level. Your stop loss should have been just below the low of the move, with a risk of 1% of your bank (or 2% at the most).

 

Figure 3.

Have a look at Figure 3 and you will see that price did indeed react very well to this level and it moved up quite nicely. Had you taken the trade with a risk reward of 1:3, you would have had a nice rise of 3% on your bank in a relatively short space of time. That’s it for today – more tomorrow.

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