SteveTobin

Short GBPUSD : News Trap Technical

Short
FX_IDC:GBPUSD   British Pound / U.S. Dollar
I am a trend trader which means the direction of the trend at a higher degree is THE most important technical factor when I take a trade. Over time this has turned me into a wave trader as that is the easiest and probably the best way to understand the structure and direction of the trend. A few years ago I developed this technical pattern caused the 'News Trap', it is a really effective and profitable trading idea.
When the trend is clearly in one direction, in this case, the trend on the GBPUSD is clearly down a piece of unexpected news can cause a pretty big move in the opposite direction, in this case it was the fact that the Bank of England MPC voted 6-3 to keep rates on hold (blue circled v on the chart), however, the market forecast was 7-2. As we know this didn't really change anything and it certainly is not enough to change the relative interest rate forecasts between the FED and the BoE, so really it was a non-event.
After the price moved higher I looked for a standard turning pattern, maybe a head and shoulders or a candlestick pattern. In this case, it was a 1-2-3 reversal pattern, effectively a lower high. This signals that the news trap is over and I have taken a short position expecting price to unwind to the level it was at before the news arrived.

I used to always be on the wrong side of these news trap events, assuming that the force of the countertrend move was significant and meant the trend had changed, I am older and wiser now, trends rarely change and the news trap technical is a great way to trade the trend.
Trade active: Price has moved as expected and is now in the area people might consider closing. The News Trap Technical is more or less complete as the pair has returned to the area it was in just before the news release caused the jump we have been trading lower.
If we accept the wave count as being correct then the pair does have lower to go, the target of 1.2947 remains the minimum target for the current move lower and as a result, I will continue to hold short
Trade closed manually: Closing trade at 1.3050, that gives a risk reward of 4:1 delivering an 8% increase in equity. The pair has made a new low and a pullback could arrive anytime around this level. I will look to sell that pullback should it appear

A great News Trap trade, they don't come often but they nearly always make good money

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