Could it be a top has been formed, at least for now? Its possible, because we may have a pattern developing on the 4H timeframe. It is not certain the pattern will complete, but I put this trade candidate on my watch list just in case. We have plenty of Japanese and UK data coming out on Monday that will give an impulse to this pair. I am describing the most conservative play here (known as the 2618 trade), with the most conformation possible. The scenario is depended on a number of steps happening before entering the trade and as such its a true “if… then… scenario”. A is a if the wick of the second meets at least the candle close of the first, while the candle close of the second does not exceed the wick of the first. In other words, PA tried to make a higher high, but failed. This retest of resistance with less strength also follows from the regular divergence at the second top.
We need the following steps to occur before entering a trade: (1) price breaks below and closes below the neckline, (2) price retraces back up, until of the prior leg down and (3) price stalls, stops and reverses at this retracement level. In that case, SL goes above the highest high of the tops. TP1 = structure level where the retracement started, TP2 = of prior leg down. In terms of trade management, when TP1 is hit I would take profit on 1 position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.
There are 200 pips to be made (if this pair follows all the steps in the script) and the trade has a reward – risk ratio of 2.2!
UPDATE 1: Price broke below and closed below the neckline.
UPDATE 2: We had a , a reversal happened and price broke the neckline dropping a total of 262 pips on the first leg down from the second top. However, my conservative entry technique kept me from profiting of this first leg down, since I need a retracement before entering. I found an alterative entry and went short, after PA finally made a that converged with the neckline area. I made 132 pips on the second leg down.