Trade Example – GBP/USD

Filed under: Learn Forex Trading |

Today, I have an example of a setup that I was considering, but one that I ultimately did not take. This is a setup on the GBP/USD pair (the pair for the British pound and the United States dollar).

 

Figure 1.

Figure 1.

To begin with, take a look at Figure 1. This is the daily chart for the GBP/USD pair. What you can see here is that price had been moving up very nicely before encountering some extreme volatility. Price has bounced up and down the last couple of weeks, making this a tough pair to trade at the moment.  I have marked in several significant levels of support/resistance on this chart (marked with horizontal green bands). The one in the middle is the level that price is hovering around, and this was the level that I was keeping an eye on.

 

Figure 2.

Figure 2.

If you now look at Figure 2, you will see the 4-hour chart for the same GBP/USD pair. When price bounded through our area of support/resistance, and more importantly, closed above this level, I was thinking about putting an order in to go long at a 50% retracement of the bullish candle, with a stop loss placed just a few pips below the low of the bullish candle, and a target of two times the risk. However, after much consideration, I decided not to put this order in. There has been a lot of bearish momentum recently, and there has also been a lot of volatility. So, for these reasons, and the fact that there was not a great deal of confluence or neatness to the setup here, I decided not to take this trade. Fortunately, my instincts proved to be correct, as by now, the order would have been filled and the stop loss hit. More tomorrow…

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