GBPUSD At An Inflection Point

Every strong trend is eventually broken, or at least takes a breather. It’s important to recognize when this transition is taking place in order to be able to respond accordingly. If not, it’s a classic example of not being able to see the forest over the trees. Getting caught committing too heavily to a trade in either direction when a pair is in transition can result in multiple strings of loses. Nobody wants that!

So what does a transitioning trend look like? The other day I talked about GBPUSD and how the higher timeframes were in obvious downtrends. But what I didn’t mention too much was the lower timeframes and how those are actually showing potential uptrends. This is a classic example of a trend that is now in transition, and the biggest tip off to this is often our trend and trade tracker tool. Here’s what it was showing yesterday:

Yesterday the weekly and daily timeframes were both in downtrends, yielding a sell signal on the daily chart. But the hourly and 15-minute timeframes were in uptrends, yielding a buy signal on the 15-minute chart.

This is a clear transition as the previous prevailing trend (the downtrend in this case) is now at risk.

Watch the transitioning timeframe

We clearly have a tug-of-war going on here. Either the larger downtrend will prevail and we’ll see a trend continuation, or price will continue ascending and flip the major trend to an uptrend. We can clearly see this on the 4-hour chart:

screenshot-2016-11-14-09-25-28

Notice how price is trading above the 200-bar SMA and the 50-bar has now crossed the 200. According to our Forex Trend Trading Ultimate Guide, this is a textbook example of a ‘developing uptrend‘. And while this is still technically a sideways trend type, the name should provide enough of a clue to be cautious. This could quite easily turn into an uptrend.

And if the 4-hour chart does go full-blown uptrend, we’d be getting a buy signal now on the 1-hour chart. That’s a stronger signal than a buy signal on a 15-minute timeframe.

How to trade transitioning trends

If you’re new to forex trading, I don’t recommend trading in this type of transitioning trend environment. It’s tricky and takes experience.

When I trade this type of setup I generally favor the lower timeframes and the trends I’m seeing there. But it’s important to stay extremely nimble. I covered my GBPUSD longs last night as seen from my SignalStart history:

screenshot-2016-11-14-09-34-06

Those wins were a nice start to the week, and I know the handful of traders copying the signal appreciated it.

But I’m now actually long GBPUSD. Like I said above, you need to stay nimble in this type of environment while price action works itself out and decides on its next move.

I hope that helps explain my thinking around transitioning trends and how I approach them. Again, this type of trading is a bit more advanced and not something I recommend beginners tackle right away. There are often easier opportunities to collect pips like the awesome, obvious uptrends happening in USDCAD right now.

Geppy

I've been involved in the forex markets for over a decade, initially starting as an FX trader at Allston Trading in Chicago. Eventually I went on and founded my own (non trading related) company. I spend my days working from home and trading forex, equity, and crypto markets.

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