Friday, 25 September 2015

Long GBPUSD from major support

Another posting from my coursework. They're coming thick and fast now. The EURUSD trade from a couple of days ago paid off nicely.

GBPUSD has finally reached the 1.5166 support line which is the low of Sep 4th and Jun 1st. There is therefore potential for a profitable long entry, as the chance of a reversal here is very high.
Usefully, the next level of support is only slightly lower, being the May 4th low of 1.5090, only 76 pips lower. Just below this provides a useful stop point
So, I want to go long, but need a target.

So I added a fib range, being conservative, and using the Aug 25 high of 1.5818 at 100%, rather than the Jun 18 high of 1.5930. My default strategy on major reversals is to assume a 50% retrace, but to make sure, I drew a descending trend line from the high through the intermediate high of Sep 18.
It is visually immediately clear that the line leaves time for that 50% to be hit. However, for additional caution, I split the trade into one contract to reach said 50% line (1.5491) and one to reach the less amibitious target of a 38.2% retracement.
I placed my stops 20 pips below the May 4th low at 1.5070.
The trade in summary is
1. Entry 1.5160 Stop loss 1.5070 Take profit 1.5491 RR 331:90 = 3.68:1
2. Entry 1.5160 Stop loss 1.5070 Take profit 1.5410 RR 250:90 = 2.77:1
Total risk 180 pips. Average RR 3.22:1

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