Bollinger Band Setup – GBP: AUD

A potential buy setup here could see a good sized correction of the 9% decline that’s occurred in the Pound against the Aussie since New Year’s Day.

If one must back the Poms against the Aussie to make money, this looks a better option than the unthinkable alternative of backing them to win the Ashes later in the year.

“W” reversal – Daily chart

GBP: AUD CFD - Source: CMC Tracker

GBP: AUD CFD – Source: CMC Tracker

This setup is based on a double bottom or “W” pattern. Bollinger Bands are used to identify potentially attractive examples and in many cases to enable an earlier entry than with a standard double bottom strategy

The Bollinger Band set up involves:

  • The 1st low in the W being made under the lower Bollinger Band indicating strong downward momentum
  • A minor rally in which no candle closes above the middle band
  • The 2nd low in the W being made above the lower band indicating weaker downward momentum

As things now stand GBP:AUD will have completed the basic requirements of this setup if today’s candle stays above Tuesday’s low. This will leave that low as a minor trend trough and the 2nd part of the “W”.

The strategy outlined on the chart is one approach to this situation and involves:

  • Entering a trade by placing a stop entry order just behind the middle band OR if this is not hit by buying if a daily candle closes above Tuesday’s high.
  • Placing the initial stop just behind Tuesday’s low. It can make sense to have a strategy to move the stop up behind new swing lows if an uptrend gets underway
  • Having an initial profit target at the 50% retracement level. This assumes that the most likely development here will be a corrective rally of the decline since early January. If an uptrend gets underway, there may be scope to modify this target based on the structure of the rally as it unfolds

This preliminary strategy approach is demonstrated in the levels used in the Tracker Order Ticket shown below

GBPAUD - order ticket

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.

2 Responses to Bollinger Band Setup – GBP: AUD

  1. zatrader says:

    I wd like to see the price get above the mean of the BB though. I like this setup though.

  2. zatrader says:

    Agreed on the Ashes, Aussie Test Cricket has taken some knocks recently with SA’s advances, so a correction should be anticipated! 🙂 And they wd love to get back upto no. 1 ranking in test.
    I like this setup, even though I am not in it. Have already made my bed in some other local JSE scenarios that deserve a chance to play out.
    I am a long Aussie fan as it has made me plenty of return in 2012, It is my benchmark currency for risk/chinese health, Risk sentiment. Such alot of precious data in Aussie price! I cant imagine trading any market without aussie FX data…Thank you Aussie!

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