GBP/USD - Wait For A Break, Close & Retest Of The Channel Top
Hi Traders,
Today we are looking at trading GBP/USD on the 1-hour time frame.
We can see that price reached a high of 1.228 and then slowly began its fall bouncing between the bottom and top of this descending channel.
We have had two taps on the bottom and four taps on the top. I have put little arrows to show exactly where the price has been touching.
I always look for a minimum of 2 taps on either side to confirm a channel.
I also look for price respecting the middle line of a channel that helps to confirm a true channel as price always seems to treat the middle line as some sort of Support or Resistance. We can clearly this happening on the chart.
So, now that we can confirm that this is a downwards channel, what should we be looking for?
Well, we look for some sort of bullish divergence on the MACD.
We look at the histogram as well as the MA Lines.
Looking at the histogram, we can see that price is sloping upwards. I have drawn an arrow to show this clearly. This tells us that the volume of sellers is weakening and buyers should be stepping in at some point.
Looking at the MA lines of the MACD, we don’t see this as yet. So, we have what we call partial divergence.
Now, we are waiting for a break from the channel top. We want the price to close above the top of the channel with a clear break and close. If we see that, we can then wait for a retrace back down to the top of the channel before opening up a long position targeting the previous high of around 1.228.
This is how we trade Ascending and Descending channels. We want divergence showing a possible change in trend, a break and close above the channel, and then a retrace back down to the channel top before entering into a long position.
These patterns work extremely well when we have full divergence as confluence.
It works just s well with partial divergence but as it's only partial divergence, I would not class it as an ‘A’ grade setup. This means I would class it as a ‘B’ or ‘C’ grade setup, which means I would not risk my usual amount on this position. I would risk less as I know the probability of this setup performing well is not as strong as a setup with full divergence.
As most of you know, I am a swing trader and I look for setups on higher time frames. However, when I am in front of my charts and I do have the time to trade shorter time frame setups, I will take advantage of that.
Hope you all have a great Wednesday.
The Vortex Trader.
Today we are looking at trading GBP/USD on the 1-hour time frame.
We can see that price reached a high of 1.228 and then slowly began its fall bouncing between the bottom and top of this descending channel.
We have had two taps on the bottom and four taps on the top. I have put little arrows to show exactly where the price has been touching.
I always look for a minimum of 2 taps on either side to confirm a channel.
I also look for price respecting the middle line of a channel that helps to confirm a true channel as price always seems to treat the middle line as some sort of Support or Resistance. We can clearly this happening on the chart.
So, now that we can confirm that this is a downwards channel, what should we be looking for?
Well, we look for some sort of bullish divergence on the MACD.
We look at the histogram as well as the MA Lines.
Looking at the histogram, we can see that price is sloping upwards. I have drawn an arrow to show this clearly. This tells us that the volume of sellers is weakening and buyers should be stepping in at some point.
Looking at the MA lines of the MACD, we don’t see this as yet. So, we have what we call partial divergence.
Now, we are waiting for a break from the channel top. We want the price to close above the top of the channel with a clear break and close. If we see that, we can then wait for a retrace back down to the top of the channel before opening up a long position targeting the previous high of around 1.228.
This is how we trade Ascending and Descending channels. We want divergence showing a possible change in trend, a break and close above the channel, and then a retrace back down to the channel top before entering into a long position.
These patterns work extremely well when we have full divergence as confluence.
It works just s well with partial divergence but as it's only partial divergence, I would not class it as an ‘A’ grade setup. This means I would class it as a ‘B’ or ‘C’ grade setup, which means I would not risk my usual amount on this position. I would risk less as I know the probability of this setup performing well is not as strong as a setup with full divergence.
As most of you know, I am a swing trader and I look for setups on higher time frames. However, when I am in front of my charts and I do have the time to trade shorter time frame setups, I will take advantage of that.
Hope you all have a great Wednesday.
The Vortex Trader.