Trade Example – GBP/USD

Filed under: Learn Forex Trading |

I have a nice trade example for you on the GBP/USD forex currency pair today. For those of you that still don’t know, this is the exchange rate between the British pound and the American dollar.

 

Figure 1.

To begin with, take a good look at Figure 1. This is the daily chart for the GBP/USD pair, and this is the only chart that we will need to look at for this particular example, as we will not be dealing with the intraday charts for this one.

 

If you look at the chart, you will see a green band at the top of the chart. This is an area that I have marked in because it represents a very significant area of support/resistance. When price moved up to this level once again, I was on the lookout for any price action signals, and in particular, a break above this level, which would have been very bullish.

 

What actually happened is that price formed a very large pin bar that stuck out like a sore thumb. I did think about putting an order in to go short at a 50% retracement of 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 my risk. However, I decided against this in the end because we would have been going against the bullish bias, and thus against the tide of momentum.

 

Unfortunately, my initial instincts proved to be correct, and had we taken the trade, our bank would have been 2% better off. You have to be very careful when taking trades that go against the current momentum, but in this particular case, the nature of the price action signal and the strength of the level probably warranted taking the trade.

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