Trade Example – GBP/USD

Filed under: Learn Forex Trading |

I have a tale of one that got away today – a setup on the GBP/USD pair, which for those of you that still don’t know, is the exchange rate between 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. As you can see, this pair has been quite bearish recently, with the 8-day exponential moving average crossed well below the 21-day exponential moving average, and the chart visibly moving down from left to right. What is also notable about this trend, is that there are lower highs, and lower lows, all the way down this trend. Therefore, I was already extremely bearish on this pair. There is also a good level of support/resistance that was coming into play (marked with a horizontal green band), and I was keeping an eye on this support/resistance level for any bearish price action signals.

 

Figure 2.

Figure 2.

Figure 2 shows the 4-hour chart for the same GBP/USD pair. What you can see here is that price did indeed retrace to our area of support/resistance, and once it got there, a very nice bearish pin bar formed on the 4-hour chart. At this point, I was very bearish with the pair. I initially looked to enter at a 50% retracement of the pin bar, with a stop loss placed just a few pips above the high of the pin bar, and a target of two and a half times the risk. Had I stuck with this order, I would have made a very nice 2.5% rise on the bank. However, I moved my entry to a 66% retracement of the pin bar in an attempt to improve the risk-reward scenario, and went for a target of four times the risk. As you can see, this order was not filled, but the original order at a 50% retracement of the pin bar would have been, and this would have worked out very nicely indeed.

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