Daily Lesson # 4

Posted on 09. Mar, 2010 by Jakob in Forex Signals, Random Noise

Take a look at the GBP/USD 4-hour timeframe chart here.

Although the pair has been consolidating lately with a small retracement, the longer term timeframe is still bearish. Now since March 1st, the pair has been forming a triangle pattern, and yesterday we finally had a real break out. Now let’s zoom in a bit; take a look at the same pair here on the 1-hour timeframe.

Now first of all, it would be preferable to enter in the direction of the trend, hence we would like the pair to breakout to the downside. On the 1-hour chart we got the initial (fake)break around 18.00, but the pair quickly retraced back into the old pattern and a couple of hours later we got another break of the trend line, with a close below the trend line. At the close of the one-hour candle, you could have entered on a perfect short trade. I would have placed my stop loss just above the recent high which would result in a SL of some 32 pips. I would expect the pair could go all the way down to 1.4926 which would give a profit of some 126 pips. After 30 pips of profit you could have moved your stop loss to break even, or taken partial profits. Overall this trade had a nice setup with a good risk:reward ratio. If you would have traded this setup on a 5 minute chart, you would have been caught in the fakeout, and most likely you would have been stopped out. This of course, all depends on your initial stop loss.

Related posts:

1. Daily Lesson # 3
2. Daily Lesson # 5
3. Daily Lesson # 2
4. Daily Lesson # 1
5. Forex Signal # 3 – Trade Setup EUR/GBP

Tags: daily lesson, forex signal, learn forex trading