GBP trade failed, Aussie working out well

GBP failed to plug its gap last night, disappointingly, falling throughout the Asia session and most of the UK session, finding a bottom during the US morning at around 1.2120, bouncing back to about 1.2160 from the open of the week at around 1.2260, a 140 point gain for the greenback against the pound. Thanks to the 25 point stop loss, risk was contained to only 25 points.

Going back to the Australian US Dollar posted on Friday. Here is how that one is working out – a great trade to demonstrate here in fact and one that can be repeated often.

Firstly, the channels were drawn in and a plan was made to enter on a powerful re-entry into zone 3. This occured overnight and it is often worth waiting, as discussed here, for a pullback of 40%, 50% or 60% of an entry candle, to get a better price.

This occurred, with an entry at the 50% line (actually the market retraced a perfect 60% of the candle as can be seen. I normally take the 40% or 50% because they are more common – I would rather pay a bit more to actually get in on the trade. It is still a ‘bargain’ compared to buying at the close of the entry candle. See this post on gold trading strategy for another example of this kind of SIGNAL – PULLBACK – ENTRY setup.

The overnight Asia session trade offered the entry signal, the next four hourly candle the pullback (buy) and you can see a couple of extensions which are good to go for – the first of which has been hit – a repeat of the first move (the length of the entry candle) x 60%, the second target being 100% of that move, before we might reasonably expect another retrace and follow through type setup, provided we have not hit a very important resistance (note the most recent highs with the triple top are undoubtedly a place where short stops will have been placed.

Stops can follow each candle’s low, or even a few pips below the 60% retracement of each successful bullish candle if something tighter is desired.

Right now, the price is bouncing off the 100 day SMA, has already reached 60% of the entry candle, which actually offers a profit of 110% the length of the entry candle, because our actual entry was 50% BELOW the entry candle’s high. It has gone on to hit the 100% So a very satisfactory trade already, meeting the 1:1.5 risk reward target.

To reach the 100% extension line above, we had to contend with the triple top from last week. I would argue that some profit ought to be taken now for sure, perhaps as much as 1/2 or 2/3 of the position and the trade turned into risk free (move the stop above break even), allowing the rest to run. So I will turn the stop to around 10 pips below the triple top high.

It is hard to tell right now whether the momentum is sufficient to carry the trade through onto new highs in zone 1, but the trade is now a swing breakout as well, so it is looking auspicious indeed for the commodity curency.

Nice trade and caught nice and early, you’ll agree from the previous post on it.

Coming soon... signals every day. Pepperstone Group Limited

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