Well, yesterday was a hard trading day but luckily today was very predictable. I spent my morning shorting Eur/Usd and Gbp/Usd on the pullback and now I feel like the pullback stage is about over and its time to become a short term bull once again.
This is drawn scenario of what I would like to see Gbp/Usd do before the close on Friday. The odds are low that it will happen exactly like this, but the potential for the overall move above 1.68 is very possible.
The reasoning behind my chart is as follows:
You'll notice that price action has tested and bounced off of the .382 fib retracement level of the recent drop. I think that level, along with the 200 EMA, should hold as support for now. You'll also notice that for now GBP/USD is in a bullish channel. I'd like to see that hold, although it obviously doesn't need to.
The blue lines on my chart are the weekly pivot points. Pivots are very powerful support/resistance zones and are something I've really been starting to incorporate into my trading recently.
As for now, I'm not in a trade with this pair yet. I'm currently waiting for the slow stochastics and the RSI indicators to fully exit the overbought zone. Once that happens I'll be looking for reasons to get into a long position. As a short term trader there are two things that my trade plan won't let me do under normal circumstances: 1. trade outside of Bollinger bands and 2. trade in highly overbought conditions. Those two things add a lot more risk to a trade and are seldom worth it in the end.
Finally, even though a move back down is very unlikely due to the dollar losing strength against most of the major currency pairs and because EUR/USD is testing new highs, I must state my backup plan/exit strategy. If price does come back down, breaks below the 200 EMA and the 1.6612 weekly pivot point, and holds below there, then I will be thinking about shorting again. I'm saying this because after 1.6612 there is basically no noticeable support strong enough to handle a good bullish reversal. In that instance the only thing we would have left would be a potential bounce off of 1.648/1.65 level, which in my mind is unlikely.
Good luck with your trading all and I ask you to not base any trades directly off of my analysis. As FORESTFX said eariler its important not to follow other traders blindly, but to take into account all the different view points that you read and then weigh them in your mind and make a decision based on your analysis. You are the only human being that should define your money making abilities.
Oh and nice find on that cup and handle formation Fx_signaltrader
