NEVER TRADE AGAINST THE TREND - GBP USD BREAKOUT REVERSAL
This summary of the recent rally on the GBP USD highlighted the important rule of never trading against the main direction of the trend. The only exceptions to this rule are
1. Reversals at Major Resistance/Support Consolidation Boundaries of the Monthly, Weekly or Daily Charts.
2. Reversals at Major Resistance/Support Price Points of the Monthly, Weekly or Daily Charts.
In the absence of any of these scenarios, trading in the general direction of the Daily Chart is always your better choice.
As you can see, there was a recent attempt by the market to start a Bearish Breakout from the Consolidation on the 4 Hour Chart overnight but this was short-lived. This movement was taken out by the Sharp Bullish Rally this morning in reaction to the sterling-positive outlook from the Bank of England. Essentially, the Bank of England stated that inflation was expected to rise to 2% which in the context of the current global pandemic and economic downturn is a very positive outlook for the British Economy. Statements like these are always positive for the currency in question and so the natural reaction of the market was to buy the sterling.
Even in the absence of this statement , the GBP USD was always going to rally because of the fact that the Outer Uptrend Line was still holding, despite the break of the Inner Uptrend Line.
So as long as the momentum of the market is still Bullish, trading in favour of the GBP is going to be the better option.
First Strategy.
Trade the False Breakout Reversal to Resistance of the 4 Hour Pennant. Exit and wait.
Second Strategy.
Trade the Breakout above the Resistance when the Uptrend is confirmed.
1. Reversals at Major Resistance/Support Consolidation Boundaries of the Monthly, Weekly or Daily Charts.
2. Reversals at Major Resistance/Support Price Points of the Monthly, Weekly or Daily Charts.
In the absence of any of these scenarios, trading in the general direction of the Daily Chart is always your better choice.
As you can see, there was a recent attempt by the market to start a Bearish Breakout from the Consolidation on the 4 Hour Chart overnight but this was short-lived. This movement was taken out by the Sharp Bullish Rally this morning in reaction to the sterling-positive outlook from the Bank of England. Essentially, the Bank of England stated that inflation was expected to rise to 2% which in the context of the current global pandemic and economic downturn is a very positive outlook for the British Economy. Statements like these are always positive for the currency in question and so the natural reaction of the market was to buy the sterling.
Even in the absence of this statement , the GBP USD was always going to rally because of the fact that the Outer Uptrend Line was still holding, despite the break of the Inner Uptrend Line.
So as long as the momentum of the market is still Bullish, trading in favour of the GBP is going to be the better option.
First Strategy.
Trade the False Breakout Reversal to Resistance of the 4 Hour Pennant. Exit and wait.
Second Strategy.
Trade the Breakout above the Resistance when the Uptrend is confirmed.