By Chloe Edwards, Trade With Precision
The Pound Sterling has taken a beating over recent months, which is unsurprising given the political turmoil and uncertainty the UK has been in since the Brexit referendum in mid-2016.
The silver lining for traders is that the strong downtrend has yielded some excellent trend trading opportunities, on GBP/USD as well as some of the other GBP currency pairs.
If we take a look at the monthly timeframe of GBP/USD above, we see that price is now approaching a significant low at the 1.2000 level. While we might anticipate some support in this area, there is also the possibility that the level could break. If this happens there may be further short opportunities with potential for a higher reward to risk.
Moving down to the daily timeframe, I can see a strong downtrend with lower highs and lower lows in price action. There is bearish moving average (MA) geometry, and the MACD and RSI indicators are still showing bearish momentum and giving me further confidence that the trend is strong.
I don’t plan to take a short trade straight into the level of potential support at 1.2000. What I am looking for is an opportunity to get into the market at a higher level after a pullback, so that I can take partial profits before 1.2000 and then run the remainder of the trade through the level if it breaks. I will be awaiting a pullback further into the area between the 10 and 20 MA, followed by a small bearish candle to indicate a suitable entry point.
I will also continue to look at the lower timeframes in these strongly trending GBP markets, as they may still offer some high reward to risk opportunities, with the benefit of offering a more accurate entry than entering on the daily timeframe.
On the four-hourly timeframe above, I can see that price has started to consolidate sideways. Since the MACD and RSI indicators are currently showing bullish divergence, I need to wait for price action to break down below the consolidation area before I can consider taking any short positions. I will then be awaiting a pullback into the MA and a lower high to form, and this may give me an opportunity to trade short down to - and perhaps through - that 1.2000 level.
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