I currently have a live trade order in on the GBP/USD forex currency pair (the pair for the British pound and the United States dollar), and I would like to talk you through this rather simple setup right now.
Figure 1.
To begin with, take a look at Figure 1. This is the daily chart for the GBP/USD pair, and it is the only timeframe that we will be looking at for this particular setup. What you can see here is that the 8-day exponential moving average has recently crossed below the 21-day exponential moving average, signalling that the market has gone from bullish to bearish. You can also clearly see this bearish momentum on the chart, with there being a string of recent black bearish candles.
On the back of this bearish momentum, yesterday, an inside bar setup formed, which shows consolidation in the market – and signals that perhaps this pair is taking a breather before continuing with this bearish move. As such, I have put an order in to go short at the break of the low of the mother candle of this inside bar, with a stop loss placed just a few pips above the high of the mother candle of the inside bar, and a target set of two times the risk. I will manage this trade based upon what price action tells us, and if the market suggests that the bulls are taking over, I would exit the trade before it reached the target. I would also particularly watch price action when it reached the low of this chart, as this could act as a strong resistance level. However, if this does break to the upside and go beyond the high of the mother candle of the inside bar, then I would cancel this order and move on – so we will have to wait and see which way this one goes.