The EURGBP has been on of the best currency pairs to trade since the referendum. And it looks ready to kick off again...
False Break Reversal
The FBR is one of the great reversal patterns. They show up time and again but can catch us out because we've been conditioned to stay with the dominant trend.
It started last Friday with the Harami, inside day. Monday broke lower following through, so it seemed, with the down trend running since July.
By the end of the day, it had reversed, leaving behind a long wick that turned the day's trading into a Hammer, one of the best price action reversal candles.
Tuesdays price action confirmed the FBR. The rule is that when price comes back above the high of the downside breakout candle, the FBR is set. Earlier sell trades closed and then reversed.
That's exactly what we have done.
Hikkake
An added technical reversal is the Hikkake. It's formed by at least three candles, starting with the Harami. Following the break lower, recovery on Monday and the break above the high of last Fridays Harami, a bullish Hikkake is triggered.
The Wave count...
Counting waves can be confusing, they don't always follow the rules! This one was clearer with five waves up, and the same down. A reversal was due but the trend could have run on, as it appeared to on Monday morning.
Fifth waves end with reversals and by the end of the Monday, the Hammer confirmed it was time.
My new course goes into detail but you can view my YouTube primer on Elliott Wave here. Make allowances for the poor sound recording.
Price action is THE most important indicator as shown on the daily chart. It's also extremely stretched to the downside, just ready for a snap back, Catapult trade.
Back that up with the weekly wave count adding to the evidence that this could become a significant reversal. At the very least it has been an excellent trade, so far.
As ever, markets will catch out the majority of traders, the majority of the time.
"Never let a profit become a loss"
Will this trade work?
As stated above 'Price action is everything and THE most important indicator there is!' Price must follow through and keep moving to new daily highs. If it doesn't, and does the opposite, breaking below it's last higher low, what do you do. Cut the trade!!
That's it. Don't wait for it to recover or drop into thinking, it'll come back. They rarely do. Take the first loss, it's always the smallest one. Then move on and trade it back into the dominant trend.
Source by George Hallmey