Although the GBPAUD daily breakout of the massive bear flag has been relatively slow and choppy, price still managed to fall 300 pips from the breakout point. Winners Edge Trading wrote about the break on August 19th (110 Day GBPAUD Bear Flag Breaking). Take a look at the following link to see why we were anticipating and setting up a bearish trade: Did you manage to catch some of those pips? Please let us know in the comments!
The main questions for today are: will the GBPAUD downtrend continue? And how much will it fall or retrace?
After the breakout of various trend lines (shades of blue), price approached the weekly bottom (green) at 1.7735 and heavily (160 pips) bounced at that support. Price is now moving towards the bottom for the 2nd time, which means a break is likely. Why?
Often enough the market needs two attempts before a support or resistance breaks. The first time break regularly encounters false breaks (watch out for wicks); whereas the 2nd breakout is often more powerful and successful.
WHEN TO ENTER
With a downtrend likely to continue, let us review if there is way for traders to scale-in a 2nd position (besides the breakout mentioned here). At the moment price has not broken the support levels and without a break I would be cautious with shorts.
- The only short I would attempt without a bottom break is if price retraces make to the top of the downtrend channel (blue) and preferably shows a price action confirmation signal (such as a wick).
- I would consider the support broken when a 4 hour candle OR a daily candle posts a candle close below the lowest support (green) line. This candle should not close too far away from the low. When these 2 conditions have been met, I would look for a retracement of that 4 hour or daily candle to about half way for an entry.
Stop loss should be at least behind a daily high to provide more protection. Traders can opt to place their stop loss above the current top of 1.7860 if they want to give the trade more space. Traders could use a trail stop loss if they want to protect themselves against a bigger pullback. In this case using daily highs for such a trail makes the most sense.
WHAT TO AIM FOR
Traders who have a 1st and/or 2nd short on the GBPAUD can aim for the bigger Fibonacci targets of the first bearish swing high and swing low. The first Fibonacci target is the -27.2 at 1.7325; the second is the -61.8 at 1.6820. Both levels have support and resistance (green lines) nearby which could act as a bouncing spot as well.
Did you manage to catch the first break out? Are you planning to trade the GBPAUD (again) in the near future? Let us know down below in the comments section.
Wish you Happy Trading. And thanks for sharing this post with others.
Winner’s Edge Trading, as seen on: