GBPUSD—what a drop

I have three short positions in this pair. One is from 1.6246 where I just took partial profits at +460 pips. One is from 1.5992 and the last one is from this morning’s little rally at 1.5871. The one from 1.5992 was the result of the evening star formation I blogged about yesterday. You can see all three of them on the chart below. My trades are represented by little triangles—inverted if I’m short as I am in this pair and right side up if I’m long which I’m certainly not in most pairs this morning (except for my USDCAD which has made me great profits since I started trading the turn in October (1000 pips in January alone). Clearly, USD is strengthening. Who cares if it’s only because of short-term risk aversion if you’re a short-term trader like me? Leave the arguments about the fundamentals to those with plenty of time on their hands (and plenty of losses if they’ve been shorting the USD on fundamentals lately).

I don’t normally do Elliott Wave counts on short time frames such as the one-hour chart. For one thing, I’m only one small trader who does all my own analysis and for another I have to have some kind of life. However, this one-hour chart shows an almost classic 5-wave decline and 3-wave correction. Within the correction, you can see a classic 3-3-5 flat pattern. I’ve marked them on the one-hour chart below. Remember, though, EW is not a guarantee. I’ve seen spectacular failures with it and you can never prove it until after the fact.

What next? The eternal question. The low today was 1.5760. Based on the impulsive look of this move down it’s possible we’ll go a bit further. The 1.5708 October low is definitely within reach. If it breaks that (with a definitive move and close—not one of those namby-pamby “let me stick my toe in the water, ooh, baby, it’s so-o-o-o cold I can’t stay” moves), then there’s not a lot of support until 1.5373. I’ll blog again if we get there—that is if I haven’t gotten into a good bottle of champagne I have tucked in the fridge. However, no counting of chickens is my rule and an honest look at this pair shows it trying to establish some support here. Time will tell. A close below the doji at 1.5760 hints it won’t find support here. If it does find support here, then look for resistance at 1.5800/06 (round number and yesterday’s low), 1.5886 (yesterday’s high) and 1.5912, an uptrend line drawn from the March lows and a Fib confluence zone. 1.6000 is where it will bump its head on a downtrend line coming in from the January 28 high.

Here’s the hourly chart:



© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.