As these market analysis scenarios are for educational purposes, a previous setup will be reviewed.
On the 25th of April a possible scenario in the EUR/GBP currency pair was discussed where the bears might be gaining the upper hand.
It is important to understand the reasoning behind this scenario. On the 23rd of April sellers started overcoming buyers because, for whatever reason, the price was deemed too high by buyers to continue buying and were attractive for sellers, so the balance of power in the market shifted. This forms the basis of what is defined as technical analysis i.e. the study of market action using a price chart for the purpose of identifying a new or the next trend in its early stages (John J Murphy, Technical Analysis of Financial Markets, 1999, Page 3). This is where the risk reward ratio is the most in our favor.
Later during the trading session of the 25th of April, the critical support level at 0.86301 was breached and a short position could have been engaged.
Buyers tried one last time to push the market higher but the price bounced against the 34 Simple Moving Average and could not make a higher top. At this point it is very important to note that one does not meddle with the plan that was prepared before the trade was engaged but wait for the market to do its thing. The only legitimate reason for taking the trade out is when a down trend was expected (as in this case) and for whatever reason the market starts ranging or showing signs of an uptrend, in which case the current trade is closed and a new scenario is anticipated and planned for.
Supply then again overcame demand and the market quickly reached the first target at 0.85976. Again, it is important not to meddle with the trade for the same reasons as above. The downtrend is in progress so patience is needed. The down momentum slowed for a day or two then the price spiked down and the second target was triggered.
Currently the market is hovering between the 2nd and 3rd take profit and the trade will remain open as long as the EUR/GBP currency pair on the H4 time-frame stays in a downtrend or until the last target is reached.
On the 25th of April a possible scenario in the EUR/GBP currency pair was discussed where the bears might be gaining the upper hand.
It is important to understand the reasoning behind this scenario. On the 23rd of April sellers started overcoming buyers because, for whatever reason, the price was deemed too high by buyers to continue buying and were attractive for sellers, so the balance of power in the market shifted. This forms the basis of what is defined as technical analysis i.e. the study of market action using a price chart for the purpose of identifying a new or the next trend in its early stages (John J Murphy, Technical Analysis of Financial Markets, 1999, Page 3). This is where the risk reward ratio is the most in our favor.
Later during the trading session of the 25th of April, the critical support level at 0.86301 was breached and a short position could have been engaged.
Buyers tried one last time to push the market higher but the price bounced against the 34 Simple Moving Average and could not make a higher top. At this point it is very important to note that one does not meddle with the plan that was prepared before the trade was engaged but wait for the market to do its thing. The only legitimate reason for taking the trade out is when a down trend was expected (as in this case) and for whatever reason the market starts ranging or showing signs of an uptrend, in which case the current trade is closed and a new scenario is anticipated and planned for.
Supply then again overcame demand and the market quickly reached the first target at 0.85976. Again, it is important not to meddle with the trade for the same reasons as above. The downtrend is in progress so patience is needed. The down momentum slowed for a day or two then the price spiked down and the second target was triggered.
Currently the market is hovering between the 2nd and 3rd take profit and the trade will remain open as long as the EUR/GBP currency pair on the H4 time-frame stays in a downtrend or until the last target is reached.