EURGBP – Short term weakness but consider the higher timeframe

On the hourly chart of EURGBP I think we are quite likely at a price juncture that allows for a decent risk:reward setup for FX traders to take a look at. Again in this setup I am looking at volatility bands which are the work of author Mark Whistler. I particularly like this type of setup as it allows you to readily take into account different timeframes and also adapt to the changing face of volatility with any instrument that you choose to trade. One of the key aspects that any trend trader is looking for is to move in line with the broader trending movement which means that you need to look at multiple timeframes.

The interesting part of this chart is that you have the 50 period moving average and the accompanying 1.25 SD bands (in red) driving lower very consistently. In addition the price has recently moved below the -1.25 SD band of the 200 period moving average. There is little action on the 200 at the moment but not quite horizontal so a mean-reversion trade seems less likely. Overall, if we see a respecting of these price levels then we would likely be looking for a short setup with a stop somewhere above the -1.25SD of the 200 period MA (blue)

On the daily chart, the price direction is more consistent and you can see the cluster of the 50 day MA and the -1.25SD band of the 200 day MA made for excellent price resistance. You can see previously though that the price found support at the -1.25SD band of the 50 day MA – this is not a universal by any measure but it’s a level to be aware of. The short-term trader may look for an initial short setup based on the hourly and pyramid the position if price clears upcoming daily support. The real plus is that if the support level is broken it opens the price up for a fairly decent move lower so even if the trader doesn’t act now it will be one for the watchlist.

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2 Responses to EURGBP – Short term weakness but consider the higher timeframe

  1. dv34 says:

    Hi Dave, Do you mean Marks book Volatiliy Illuminated? doesn’t he use multiple VWAP x,000 tick weighted bollinger bands? he constantly talks of measuring subset distribution on the move etc… its like listening to Steven Hawking!, pretty heavy stuff…. Interesting twist above though, nice.

    • David Land says:

      Good afternoon,

      I have read that one too but the method I was referring to came from one of his other – “Macro to Micro Volatility Trading”. I think he is one of the more original trading authors out there which is a great attribute to have.

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