Last week I was following EUR-GBP, trying to catch a breakout to the downside. This pair kept on eluding my efforts, making new highs instead. By Friday price reached just under 0.9000 level, almost touching an all time high from 1995. Very impressive. Here is monthly chart of this cross.
These kind of multi year highs often provide a solid support/resistance for prices. Chances are high we will see some reaction in the neighborhood of 0.9000. Whether it is a reversal or only a pause in a very long term bull run is impossible to tell at the moment. Weekly chart provides a little better view.
This chart shows a possible parabolic price run up, or blow out top. When price behaves in this way, very often the following reversal is dramatic and steep. If this advance doesn’t slow down very soon, probability of sharp fall will increase with every new bar. Good way to capture profit in this kind of conditions is to place a sell order just under the low of most recent bar, with initial stop at the top of the same bar. If the price moves in the the direction desired, objective can be established. In this example one could look for an entry around 0.8550, seeking objective of 0.8200, which happens to be important Fib level, as well as previous minor high. Extended target could be 0.7700, most recent low. If somebody expects a prolonged sell off, Parabolic SAR could be used as a stop for the trade. Frankly, though, I would like to see bearish candle to form first, as the last one was decisively bullish. I have to wait another week to see what develops.
Daily chart shows a better entry if this same tactic was to be used, with corresponding objectives. Movements have been so large lately, that even on this chart targets would be in hundreds of pips, very high for this pair. I might use weekly chart to establish a short position if there is bearish candle next week. Outside of that, I’m looking for smaller targets on 1H chart, and possibly 4H, depending on how price develops over next few days. I think that risk/reward ratio for a short trade is good here and warrants some attention, especially since it is about the same on all time frames. Both short and long term traders might find a trade here.
Mike K.
Interesting. Maybe I will crawl out of the hole I’m in. Thank you.
Even if top reversal happens here, it still might take days or weeks of some back and forth movements. You never KNOW, every trade has risk in it.
[...] to them, with the desired results. Nothing to second guess. I have to bring back fairly old post, “Story of EUR-GBP”. At the bottom of it there is potential trade on daily chart of EUR-GBP. Principle was simple, have [...]