Trade Example – GBP/USD

Filed under: Learn Forex Trading |

I want to show you a trade setup that occurred on the GBP/USD forex currency pair recently, which is the pair for the British pound and the American dollar.

 

Figure 1.

If you take a look at Figure 1, you will see the daily chart for this pair. What you will see is that price is moving up, with the 8-day EMA crossed above the 21-day EMA, and the chart visibly moving up from left to right. One level of support/resistance has been broken through, and the chart is now forming a new level of resistance – marked with a green band.

 

Figure 2.

If we now zoom in to the 4-hour chart (see Figure 2.), you will see that there is some interesting price action around this green band. I actually took a trade at the breakout of the inside bar, anticipating that the pair would move higher. This trade was stopped out for a loss. The trade was faked out with a pin bar, and in hindsight, I should have waited for a confirmation signal via a daily breakout bar. Having just taken a losing trade, I opted to stay out of this market for a while. However, we could have take a short trade after this pin bar, with a stop loss placed just a few pips above the high of the pin bar, and a target of two times our risk. Had we entered this trade at the close of the pin bar, we would have made a nice 2% rise on our bank.

 

Price often respects previous levels of support/resistance, and we have to wait for confirmation signals before trading one way or the other. This confirmation comes in the guise of a price action signal. This is our edge in the market, and in the long term, this edge should play out in our favour.

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