GBPUSD—break out? fake out?

The pair has rallied to a high so far this morning of 1.5012 (as of 8:03 AM EST). This means it broke over the top of its channel which is currently at 1.4976, over a daily speed line, and over a short-term downtrend line. The 89 SMA is at 1.4975 and GBPUSD is encountering a Fibonacci confluence zone. Regardless of what happens in the next day or so, one can easily see why price would stall here.

Stall or not, I blogged yesterday that I believed this area was a good shorting opportunity. I took a small position yesterday at 1.4969. Early this morning, a sell order was executed at 1.5007. I wrote, that what I was "hoping is that it continues up in price, achieves an RSI reading on the hourly chart of 70 or greater (thus becoming overbought in the short term) and then closes below 70. That would be an ideal sell signal."

The pair did exactly that yesterday afternoon. The result has not been a sustained downward move. This unhappy fact means that either my analysis is flawed or that the analysis is fine but it's not considering all that needs to be considered. Or, still unhappily, that the market is faking me out.

Since I also wrote yesterday that "the possibility of 1.5240/50 can't be ignored if the pair makes a sustained move above 1.4950 so any short would have to have a tight stop," I'm doing that. I'm not quite ready to bail out of my shorts (one is under water and one is positive about 20 pips) but I'm tightening stops and moving the most current one to breakeven while I take another look at this picture.

© 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.