The GBP/AUD has been in a surging uptrend for about 2 years…
But you have may have noticed that the GBP has not been among the strongest currencies lately, and conversely the AUD is beginning to build strength.
The downside of trading against a 2 year trend is that you are trading against a 2 year trend… BUT the benefit is that there is a a lot of room for movement even if you’re just playing a pullback within the trend.
A quick look at the GBP/AUD on a Daily Chart shows you the kind of space to the downside I am referring to:
That’s about 1,200 pips, by the way.
As you can see from my image, I have noted 2 things via technical analysis:
1. The daily chart has broken through the bearish channel that it formed over the last month.
a. Typically, this is a “Bull Flag” and we see a northern break from this formation, but in this case we see a very strong break to the downside
b. The channel is by no means a perfect demonstration of the recent movement which is why I have also highlighted the consolidation period
2. Price has broken the former low point of the consolidation suggesting its seeking lower prices
a. This is important because after the Feb 20 low, price made higher highs and higher lows suggesting that it wanted to continue the uptrend
b. Not only did the price not continue upward in the typical “V” formation after making the low, but the break lower was very forceful
We can see that our Feb 20 low IS an important level because price broke and re-tested the price before continuing lower:
The retest of that low (represented by the bottom of my range) simply shows us that the Market did, indeed, know that the level was there and it adds to our pile of evidence that this pair wants to move further.
At this point, there is enough confirming factors to enter the market… And so we did!
You can see from my dotted green line that we have just entered the market and are at about 0 pips as it stands now.
Note that on this trade, we have a massive stop loss because many, many times the market will create a perfect breakout scenario like it did here but shoot back up into the consolidation range later to stop out the breakout traders.
Instead of being stopped out, we’ll add to our position if that occurs and maximize our risk to reward.
Currently, we only have half a lot on the trade which gives us plenty of room to add to the trade if such an opportunity presents itself.
My stop is at 2.0070, above the massive psych level of 2.0000 and above the mid-February high around the 2.0 level.
**Bonus: This is a trade we could be holding for a while, so one huge bonus is that we’ll earn positive swap/interest in the account for every day that we hold it.
All in all, we love this trade because it has all the things that make us feel warm and fuzzy:
- Good Matchup – Weakening Pound vs Strengthening Aussie
- Very strong technical signs that we’re headed in the right direction
- Good Risk/Reward Potential
- Room to Add to the Position and Maximize Profits
- Safe Level for our Stop to Increase the chances of a Win
- Positive Swap on a Long Term trade
- Lots of pips on the TP to make our trading stats look good 😛
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