The Cable dropped 240 pips last week and over 600 pips (!) the last 9 days without any fundamental reason I can find related to the UK economy or BoE, apart from some purchasing managers' indices missing their expectation. Last Wednesday the US ADP Non-Farm Employment Change missed expectation, signalling a potential miss of NFP on Friday, which did indeed happen. NFP was a mixed event, with the headline missing expectations, but with upward revisions of prior months and with unemployment falling to the lowest level since 2008.
On the technical side, we see an ABCD reversal pattern coming into a key support level on the daily timeframe. This is a 4 point price structure comprised of three consecutive swings where C is lower than A and the intermediate high after B. D is a new low under the price of B. AB and CD are proportional in both price and time. A high probability trade entry would be to go long at the completion point D. It converges with an oversold RSI, a key support level where price reversed before and a zone between the 500 and 618 retracement of the bullish trend that started last April. The mixed NFP of last Friday might help it push up as well.
The stop would go under the aforementioned 618 retracement which has a nice confluence with the lower trend line of an ascending parallel channel. If price breaks these, the trade becomes invalid. TP1 lies just under the next key resistance level. TP2 lies just under the price level of A. See chart for details. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade towards TP2. As always consult your own trading plan and apply the rules of entry, exit and risk management you normally use and are comfortable with.
There are 750+ pips to be made and the trade has a reward – risk ratio of 7!
Thanks for your comment. I am not proficient with supply and demand zones myself, would you care to put up a chart and explain briefly?
yonswac
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Strong rally, not a really good demand area TBH, because it's not fresh anymore.
nick.harrington
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Great trade so far Jasper. I took this as a swing trade and have already exited not as much TP was much lower and not actively monitoring the trade. Love your thoughts and keep on pipping!
JazzForex
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Thank you for saying so and congratulation on the pips made. I am still long, aiming for more pips. Lets see how it develops :)
mastergravy
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The price didn't reach the bottom of this perfect channel, why buy now?
JazzForex
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Good question! The trade is not based on that channel per se, rather on the confluence of a number of reasons to go long at the level above its lower trend line. But the channel does provide some extra "security" so I put the initial SL below it.