Yesterday the trade plan I posted for Cable indicated a head and shoulder pattern being setup on the H4 chart – with us being at the top of the range for this pair, this is exactly where you would expect to see a reversal pattern. Price is currently flirting with the neckline and this could be an opportunity for bears to get into the market after yesterday’s bearishness. Note that price closed lower than it opened yesterday, moved up to resistance during Asia and is currently trying to break through.
Think of all the bulls that really don’t want this head and shoulder pattern to form because of all their long positions up until this point from the bottom of the range. They really are going to try and get this to break through resistance and above the top of the range on the daily chart as this could be the start of a bullish trend. Bears would of course love this pattern to stay intact as it means they could look at selling this pair all the way down to the bottom of the range and maybe lower.
So who’s going to win? Well, take note of the trade plan on the H1 chart below for entry opportunities for bulls and bears. Before entering any trade it is important to confirm that support or resistance is in play on a lower time frame chart. So if you have identified support or resistance on a higher time frame chart, then you are jumping into a lower time frame, say M5, and looking for a higher high (support) or lower low (Resistance). Once you have confirmed that, then look at trading the pull back and either buying the higher low (support) or selling the lower high (resistance). Now to be extra cautious, you could decide to only buy the higher low or sell the lower high after you see a 5/8 cross. Remain patient and disciplined.
May the pips be with you.