I’ve been watching EURGBP for literally weeks as the pair has been going through a major correction after a huge move higher. I’ve seen a lot of chatter on StockTwits and forex forums about buying the pair at a “discount”. This chatter has been going on for weeks, and I’m sure these folks are either deeply in the red or stopped out by now.
The other week I finally pulled the trigger on buying this pair. That doesn’t mean much; I often take positions to help me monitor them, starting with a small buy or sell and seeing how things react. But today I added another buy, so let’s take a look at why.
Daily timeframe requires weekly trend confirmation
When it comes down to it, I’m taking this trade from the daily chart. That means, to validate my trade I need to see confirmation on the weekly chart. So here’s a quick look at that:
If you’re a regular reader you may be tempted to argue this isn’t actually an “obvious uptrend” as detailed in my ultimate guide to forex trends. But the thorough reader knows that I detailed this as an exception in that same article. Weekly and monthly charts need a bit more objectiveness.
In short, just because the SMA’s aren’t purely aligned doesn’t mean this isn’t an uptrend. It certainly is.
Another thing of note is how price bottomed at the 38.2% fib level of the move up that started in July 2015.
Daily chart is clinging on to its uptrend
The daily chart may look a bit scary. Price has fallen through both the 50 and 100 day SMA’s. That said, it’s finding support above the 200-day SMA and we haven’t seen an SMA cross over yet. Technically, the SMA’s are still purely aligned:
So we have alignment of an uptrend on two different timeframes. These are trades I always look for. But what about our risk?
This is what I love most about this trade. Defining the risk is super simple. Take another look at the daily chart above. If price trades down through the 200-day SMA would you want to be long?
I hope your answer was “NO!”.
I wouldn’t want to either.
And that’s why I have my stop sitting at 0.8300 — that’s currently just below the 200-day SMA and it will become a bit more below it with each daily candle.
The key is remaining patient
I don’t expect this trade to develop overnight. Heck, I’ve been waiting weeks just to take my first entry. And that’s the key.
I see so many traders fail because they lack patience. I still struggle with this from time to time. It’s hard.
But doing nothing is often the best move. And when you take the time to plan your trade and define your risk, what’s there to worry about?
I have no target in mind. I generally don’t because my goal is to catch large moves and continue to move my stop lose further and further into profit.
If you like the way I think and want to copy my trades, consider subscribing to my signal on SignalStart.
Best of luck!