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Transcript of Video
Let’s get started today on the Greater British Pound versus the US Dollar [GBPUSD]. But before I begin the analysis for today, it’s important for us to realize that we have a shorter trading day today. Many brokers are closing early for the New Year’s holiday, so we have a much abbreviated trading day today. What’s left for the year of 2014. Of course tomorrow, New Year’s Day, bank holidays across the board. Many trading platforms will also be closed tomorrow. So, just be aware of that if you’re going to be entering new trades today, you may not have the ability to manage those trades over the next day or so, until you get into Friday. So, just be cautious. Use appropriate risk strategies if you’re going to be trading today.
But as we go here on the GBPUSD, we could clearly see that this currency pair has been in a downtrend. It’s been going down for quite a long time. You go all the way back up here to the top left-hand side of the chart. You could see it started up in towards the upper-1.7100s, towards the 1.7200-level, and just began a free fall and continued to pressure lower, all the way now down into the 1.5500-level. So, clearly it’s been a long-term downtrend without any real significant retracement, so I think that’s something of note also.
I know it doesn’t have to turn around and go back up, but there hasn’t been any real significant retracement for the past several months. So, there is always the possibility that we keep an eye out for clues to support and potential reversal, but at least at this point, we are clearly well in the parameters of the downtrend. The downtrend is defined as having lower highs and lower lows, and clearly we’re still within that boundary.
I think we’d either have to break the blue trend line or maybe even come all the way back up here into the 1.5700s and break through these resistance highs before we could even clearly begin to define this as a reversal or a change in direction, and of course we’re nowhere near that right now. So, long ways from being a reversal. We do see a little bit of a rise today, but I think that may just be temporary here on the last day of the year. Clearly we want to focus our efforts still in the direction of the downtrend.
Let’s go ahead and zoom in a little bit here on the Daily Chart. You can begin to see what’s been happening over the past several weeks. And I think the most important area, and I’m actually going to zoom in one more time. I think the most important area for us to focus in on is that green-shaded area right there at the bottom of the chart. The blue area, and then the green area.
Look at all the support here. We’re going all the way back into the mid part of November, where we started finding support. Seven days found support, made a rally higher. Came back down. Five days support, challenged it, couldn’t break it, no open and close underneath it. We have a close, then an open, but no singular candle body underneath it. Reversal, went right back up to the pink-shaded, came back down, two days support, attempt to breakout, support. Finally we see it pushing back up underneath there. So, that is clearly a decision zone in the market. It’s where previously, as support, sellers were exiting and buyers were entering.
Now we’re on the opposite side of it. We’re underneath it, as now support becoming resistance, so this same area, 1.5600 to 1.5630, 1.5635, the green-shaded area becomes our resistance zone, where it was previous support. So, for the day today, it’s not too hard to see that as long as it stays underneath here, we expect to find resistance. That’s clearly the decision zone today; is that as long as it stays underneath there, we’re looking at resistance, so terrible place to buy it.
If you were going to buy it, of course the best place to do that would’ve been all the way down here with lower risk and higher reward, down into the blue-shaded area. So, those two areas are probably your most significant areas to take a look at for the day today. Now, of course, like I said, if it starts to breakout above the blue trend line, that gives us a clue to potential reversal, but I even think we’d have to wait for it to get all the way back up here, above the pink-shaded area and the last highs that you see there into the pink-shaded area before we could even begin to talk about reversal here for this currency pair.
So, green zone. Blue trend line. Our closest resistance, of course, if it rallies to the pink zone, that also becomes resistance for the GBPUSD today. Selling resistance is the main focus in the direction of the overall trend. The longer-term blue trend line, coming down from the top of the chart, also gives us a clue to resistance here. Fibonacci. Let’s take Fibonacci just from this closest high that we see right here, down to the most recent low. And in doing that, we find the .382 Fibonacci retracement level right at the 1.5500-level. So, that’s very interesting right at the bottom of the green-shaded area.
50% also gives us a little clue of resistance into 1.5635. Guess what. That’s at the top of the green zone. The green zone is not there because of Fibonacci. The green zone is there because of the support that we see over here on the left-hand side, but isn’t it very interesting that it matches up with our Fibonacci retracement levels? One more level in there, the .618 fib. A little bit higher, and I’m going to try and pull this little yellow-shaded area over a little bit further. We’ve studied that in the Trade Room. That happens to be where the .618 fib is. I think if you’re looking for an opportunity today, this is clearly only a selling opportunity into resistance in the direction of the overall trend.
Let’s take it on down to the 4-Hour Chart, and I’ll have to zoom it back out a little bit, so we could see some history here. There’s our green-shaded area. There’s the supports that we’ve seen in there. There’s the .382 and the 50% retracement level. Clearly this is our decision zone today. If you’ve been buying it, let’s go that way for a moment. If you bought it into the blue zone for whatever reason. Green arrow. Green trend bar. Forex Black Book. If you bought it because of that, then of course you’re seeing profit, so you should begin protecting that profit. If you bought it on top of the blue-shaded area with the green arrow, you should be protecting profit right now.
If you didn’t buy it, because you didn’t want to trade against the trend, which is of course very understandable. If you didn’t buy it, now is your opportunity to start looking for a return of the trend, which would be of course selling in the direction of the trend. Here into the green-shaded area may be the best opportunity that you get today. I think if you’re going to sell it inside the green zone, your stop placements, you really have two places that you might expect to place a stop. It depends on how much risk you want to give the market.
Let me see if I can get a red, horizontal line just to draw in where we might expect to be a stop loss. I’m going to change this line to red real quick, and then I’ll bring it on down. First off, a very tight stop loss might be just above the 1.5635 or just above the green-shaded area. That would be somewhere. 1.5640, 1.5645. That would be a pretty tight stop loss. A little bit more lenient stop loss would be above the .618 fib here, which sits at 1.5667. You would likely go back up here into the 1.5680-level, which would be above that yellow-shaded area and of course above the blue bearish-facing trend line there for the GBPUSD.
So, you have two opportunities. One is a little bit tighter, just above the green zone. One is a little bit more lenient, just above the yellow zone, but still selling into resistance would be your main focus here for the GBPUSD today. Your target of course is the blue-shaded area first. Then you’re protecting profit. If it breaks the blue-shaded area, you look for a continuation of the downtrend for the GBPUSD over the next coming days.