GBP:USD – Positioned for a big move

We have seen some very big moves in markets since the GFC. If things continue as they are in Europe, there is every chance we will see more.

This situation has created some great opportunities for big picture traders willing to adopt strategies that may take months to unfold. Of course there will be plenty of losing trades along the way and risk management is as usual essential. However, traders using big picture break out style strategies, have had conditions made to order since the GFC. This type of strategy aims to enter near the beginning of a large new trend but with a relatively close stop.

How to capitalize on this situation? One approach is to use some longer term strategies as well as your normal short term trading. This can position a trader to really milk some of these big trends while continuing with their day to day trading. A key to this approach is to build both long and short term strategies into a single risk management framework e.g. make sure that your combined long and short term exposure to a single instrument is within the overall limit you have set.

The current GBP: USD triangle looks to be a potential example of this big picture break out set up.

I’ve shown the triangle on a monthly chart to provide a zoomed out view. As you can see, big picture triangle traders had a good opportunity here in 2008 with the break below triangle support at “1”.

GBP:USD – Monthly. Source CMC Tracker

The current triangle potentially forms the 4th swing in the major move down since the peak in November 2007. The fast stochastic is trending down with the red %D still well outside the oversold zone.

Both these factors provide a clue that a break below the current triangle support may be the beginning of the 5th and final swing down in this major decline.

A typical entry strategy would be to apply a price filter to the triangle support e.g 50 pips. Entry would then be triggered if price falls 50 pips below the support line.

The target shown on the chart projects the height of the pattern (i.e. 4 down to 3) from the triangle support line.

If we get a setup, I’ll post a follow up discussing an approach to stop loss strategies

Cheers

About Ric Spooner

Over 30 years market experience - professional trader, broker, director
This entry was posted in Forex, Market, Trading and tagged , , , , , . Bookmark the permalink.

4 Responses to GBP:USD – Positioned for a big move

  1. Mostafa Al-shadidi says:

    Hi Ric, but if you look at the weekly and draw the trend line, the price seems to have broken the line and is testing the trend line from below it. I am not questioning your expertise but i just want to know whether I’m wrong? cheers.

    • Ric Spooner says:

      Hi Mostafa,

      I agree and normally most traders would in practice be looking at this trend line on the daily chart to determine the trend break. As you say we did actually break below the trend so break out traders may well have entered the postion on Friday.

      However, given that we retreated back into the triangle at the close, traders who have not already entered may be best to wait for price to move back clearly under the support rather than picking up would could be a false break at this late stage.

      A more conservative approach would be to wait for a move below Friday’s low to enter. The risk: reward to the target will be good enough to support this.

      I hope this makes sense

      Cheers
      Ric

  2. Curly says:

    How do you set an entry price to a rising trendline? Do I have to update it daily?
    Cheers,
    Curly.

    • Ric Spooner says:

      Hi Curly,

      The entry on this strategy is actually based on a confirmation of the 2nd trend trough above the Bollinger Band on the daily chart rather than a trend line. Friday’s low represented a possible short term trend trough (i.e. a lower low surrounded by two higher lows). The entry strategy outlined in our Bollinger webinar involves buying on the first close above the high of the trough candle. Friday’s candle had a high of about 1.5537 so entry would have been on this mornings daily candle close at about 1.5571. An alternative approach would have been to set a stop entry to enter as soon as price moved above Friday’s high. In this case you may have bought yesterday at around 1.5540
      I hope this makes sense

      Cheers
      Ric

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