Saturday, December 6, 2008

GBP/USD momoreversal and short-term pattern deviations.

Here's an example of a trade I took in the GBP/USD futures contract (6BZ8) at 9:07am Eastern Standard Time on the 4th of December 2008. There's three waves of downside visible on the 30min, highlighted by the white lines running alongside them, which often leads to trend reversals with the right characteristics in place. One technique I use to help decipher where a wave begins or ends is by using the colours of the candles- you can see that the downside waves are made up mostly of red candles while the ranges between them are a random mix of red and green ones. The larger momentum reversal described here "failed" in the sense that it broke that lower trendchannel line. However price can often deviate from a price pattern briefly before returning to it's prior path.... (area highlighted with the blue circle). On a higher time frame, that deviation would be seen as a wick or a shadow on one candle and is often times referred to as a "flush". The confirmation that this was just a blip in an otherwise strong setup came as price moved back into this 30min wedge-like range and, as if nothing happened, pivoted off the lower trendchannel line (the yellow arrow, where I entered based on the pattern occuring at that point intraday)

You can see my entry there at 1.457 (yellow arrow on the intraday chart). I watch price movement as it comes into that lower support to time the entry with the volume spike suggesting trend exhaustion- stop was 1.456. I exited up at 1.4599 just shy of 3X my risk...

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