Detailed Gbp/$ Forex Analysis 22nd June

In Tuesdays profit warning update I described what was happening on the cable (gbp/$ ) chart above and tried to show you areas to look at for possible reversal areas on a forex pair.

Gbp/Usd: In the analysis for the chart above I explained that what was extremely interesting to me was where price was then. The arrow is pointing to where the 4 hour and the daily trend lines meet.

I said “This area is critical. If price starts to go back up from here we could be at the bottom of a major move upwards for 100’s of pips (possibly a 1000 to the top trend line)”.

What I am going to explain is how I bring my varied trading methods together to try and calculate where price is going next.

I have been trading forex for over 5 years now. You can not expect to pick all this up overnight, but it will give you an idea of how a professional forex trader tries to build up a detailed picture to arrive at a decision. Especially on a trade like this which could yield many 100’s of pips.

This analysis for cable will be extremely detailed. If you have read the free lessons on the main site, hopefully this will all be starting to come together. If you are new, don’t worry, just try to absorb the information.

My thought process is as follows

1. On the daily chart (above) I can see that price has been in an uptrend/channel for 6 months (the 2 parallel yellow lines) and price has bounced off the bottom line 5 or 6 times. As price comes down to this area I am therefore looking for other reasons for why price might react in this area. That is I am looking for other pieces of the jigsaw to support the theory. So next I go to the 4 hour chart as shown in fig 2.

2. The almost horizontal yellow line is the 4 hour down trend line as shown in the following diagram

Fig 2

4 hour down trend gbp/usd

Here on the 4 hour forex chart we are looking for;

• an aggressive trade, a bounce back off the bottom line with a stop just below the trend line (not a great idea in the markets for the last few days) or

• A more conservative break & close of a candle through the top line

• A 3rd option of course is to consider all the reasons why we might short (sell) the pair; a break and close below the daily trend line would be a major reversal

Are there any other clues we can look for ?

Fibonacci. Take a look at the same chart with fib lines added (Fig 3). See how price has bounced twice at the 5o% fib line (standard fib pullback strategy as I have explained numerous times before). This 50% has also become a double bottom, another strong support area.

Notice also how price has failed to break & close above the 23.6% fib, therefore this is a resistance area in roughly the same area as the upper trend line.

Fig 3

So What Happened next & where do we go now ?

Gbp/$ 4 hour chart break out of uppper 4 hour trend line after bounce off daily and 4 hour trend line at point 1

Possible entries

1. The aggressive trader would have bought at point 1 which is a close of a hammer candle after a bounce off a 50% fib and daily trend line. I missed it ! I was watching for it but had to go out. Doh !
2. Less aggressive trader at point 2 where the candle has broken (and most importantly closed) above the upper (yellow) resistance/trend line. I caught it here. It was not an LMT move, just my normal stuff.
3. More conservative trader would Definatley look to enter here, the only problem it was so late on friday that you need to wait for Monday open to look for an entry. I never enter trades friday pm. Also beware pullback Monday market open though, or now wait for LMT signal). At point 3 we have had. Confirmed break and close of trend line and fib as well as close above fairly major psychological level of 1.6500.

The final piece of the jigsaw for me is my normal chart set up that I show in the last diagram below (as explained in detail in the free lessons).

Price is above all the emas on the 4 hour forex chart for gbp/$

For those of you who are new to forex trading this may seem more than a little overwhelming ! The secret at the start of your forex trading career is to take things one step at a time. The LMT is great for you to get started with, as well as being a great addition to the arsenal of an experienced trader. To start with keep things as simple as possible and read, read, read as much as you can. If any of you are interested in joining the LMT Forex Trading Formula, (we have relatively new traders who have gained 5/6/700 pips in their 1st week with this amazing system) ! click on the link below;

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If you would like to receive regular free analysis, tips and advice from me, just send me an email: marc@forex-fxtrader.com I will post less detailed analysis for the other 10 pairs here on the blog tomorrow, regards, Marc

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This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.