In total this pair rallied 285 pips after breaking out of a (see the related idea), but it now looks fatigued (after 2 weeks of upwards price action) and we currently have a basic reversal pattern called a on the 4H. Price tested and respected a key when creating this pattern. There are 4 different ways to trade a and I am describing the most conservative scenario here. It is depended on a number of steps happening before entering the trade and as such its an “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, price 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. The oscillator was overbought on Wednesday and steadily came off that level while making higher highs, indicating underlying weakness.
In the conservative scenario, known as the 2618 trade, we need the following steps to occur before entering:
- price breaks below and closes below the neckline;
- price retraces back up, until of the prior leg down;
- price stalls, stops and reverses at this retracement level.
There are 195 pips to be made (if this pair follows all the steps in the script) and the trade has a reward – risk ratio of 1.9!
I guess most experienced trader did not take this trade, besides maybe a small aggressive position