Last week was a great week for Cable longs. The pair moved from a low of 1.5475 to 1.5889 in above average volatility. It overcame strong resistance at 1.5651.
As of Thursday evening I was holding three long positions from 1.5419, 1.5602, and 1.5750 respectively. I closed out the latter two on Friday afternoon for 1.5865 and 1.5827 for a total of +340 pips. Even though I wrote on Thursday that there was little in the way of the pair moving to 1.5912, the weekly high on Friday of 1.5889 was very close and I wanted to book profits. I still have my long from 1.5419 and may close it as well. I can always come back in on a retracement.
This morning the pair has touched a high of 1.5915 in the last hour. There is negative divergence on the three hour chart. After its strong rise last week, a pullback would help the pair get more energy (if there's any to be gotten) and then it could try again for 1.6000, a big psychological number. 1.60 would also be an interesting peak from a weekly point of view in that there's a potential head and shoulders pattern with the head at 1.6302 (the top of the bearish engulfing candle from November) and the neck at 1.5295 (September low).
Resistance is at I have a price target of 1.6100 coming from a three-hour point and figure chart. The downtrend line on the weekly chart is coming in at 1.6228. So resistance is 1.5912 (prior high), 1.5960, 1.6000, 1.6100, 1.6228 (weekly downtrend line), and 1.6300 (the November high which was also the top of a monthly bearish engulfing candle.)
Support is at 1.5810. 1.5740/10 (prior resistance and uptrend line from last week's move), 1.5686/51 (fibo of most recent move up, daily 10 SMA, and strong prior resistance). Below that is a strong range from 1.5567 to 1.5506 made up of fib confluence, moving averages, and price.
So the potential is there for strong moves in either direction. Watch for signs of faltering as it moves towards the mid-1.59 range to 1.60 for the possibility of shorting.
Here's the three-hour chart. Note the overbought state of RSI and the negative divergence.
© 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.