On the technical side, the Cable has been trading in a bullish parallel channel on the daily since the beginning of this year, testing its resistance three times and its support twice. More recently it started trading inside two converging, downward sloping (falling wedge-like) testing both of them three times. The most recent test of resistance happened at the end of last week and the pair lacked the strength to break above and close above it and instead printed a followed by a candle pointing to a reversal. This aligns nicely with the hidden divergence, which indicates underlying weakness. The preliminary UoM consumer sentiment beating expectations on Friday and the UK dipping back into deflation might help push it down so I am looking for a sell.
My stop goes above the aforementioned resistance. If price breaks it, the trade becomes invalid and when I am wrong I want to be out of the market without hesitation. TP1 is the support of the . TP2 lies on the lower of the two downward sloping , in case price would continue to fall and test it. See the chart for details. In terms of trade management, when TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade towards TP2. As always consult your own trading plan and apply the rules of entry, exit and risk management you normally use and are comfortable with. This is not a signal, just an explanation of the reasoning and thought process behind a trade I am looking to enter.
There are ± 450 pips to be made and the trade has a reward – risk ratio of 5.0!