From the prolific Craig Cobb at Trade with Precision:
Sure, the daily and weekly charts of this highly popular currency pair may be in a confirmed down trend, but, when will it be time to start looking to join this prevailing trend again? After a solid weeklong rally, the time may very well be soon. To time this entry, we want to make sure the lower timeframes are also trending in the same direction as the higher ones, let’s take a look and see what the charts are telling us to see if we can locate this tipping point.
The weekly chart is in a nice downtrend with clear pull backs into the sell zone (the zone between the declining 10 and 20 moving averages). This latest wave down has been a good one and right now it appears that the weekly is back roughly into its zone for the next possible move down.
The daily chart below is too in a strong downtrend and well and truly back in the sell zone. Price has paused over the last few days almost as if to be waiting for an answer as to where to next from here.
With the weekly and daily both trending well and with price being somewhat caught and stalling, it’s time to consult the lower timeframe. Now the 4 hour is starting to show its hand a little and may give the signs of where to next if we know what to look for …
Firstly, let me focus on the vertical black arrow. This point is the higher low in the current price trend. Should price break down through this level then it will potentially set a new lower low. Now to focus on the yellow arrow above, this is the potential lower high which is currently forming. Should we see a lower low come in from this point then we will have a confirmed downtrend with a lower low and lower high. At this point we will also have a break down through the consolidation on the daily chart and GBPUSD will look much more bearish at this point.
It is this 4 hour chart that represents the “tipping point” for me. It represents the point when the intraday trend is again in agreement with the longer term trends of the daily and weekly. It is at this “tipping point” that I then give myself permission to look for potential shorting opportunities. Until this tipping point occurs, I will be merely doing what most good traders do and that is sitting on my hands waiting!