A GBP/USD trade
I was keeping a watch on the GBP/USD, which was in a downtrend on the 1hr time frame.
One of the reasons this pair was on my watchlist was that it was approaching a strong support level, which was in confluence with the 78.6 Fibonacci level.
Those familiar with my work know about my ‘Magic Trap Level’, & I look for confluences at this level for good trade opportunities… and boy, did we get some strong confluence in this case.
Let’s start with the ‘most effective trading pattern’ ever.
This is a pattern based on the basic concept of ‘Supply & Demand’, and it is highly effective.
It happens when a certain price pattern is formed to ‘Shake out’ the stops of the Breakout traders.
(the class of traders who look for trades after a price consolidation). Once they identify a consolidation range, they would place a ‘Buy’ above the range & a ‘Sell’ below the range. Whatever direction price breaks out, they would expect to be in the trade.
But like everything else in trading, if you know & I know it…the professionals know it too -)…and they tend to drive price in both directions….to take out the stops of these traders.
Looking at the enclosed chart, one can clearly see the range marked.
Price initially moved above the range with a (comparatively) strong candle & immediately reversed back…below the range, thus taking out the stops of the buy trades…..and triggering the Sell trades.
Then price immediately moved up with strong volume…thus taking out the stops of the Sell trades.
Once these stops are shaken out, price moves to its expected trend…which is where we should get in.
I call this the “Law of the charts” and one can take advantage of this, if one knows how to spot it.
The offshoot of this formation creates a divergence, which is nothing but taking out the stops of the novice traders, thus making divergence a highly effective trade pattern.
But a trader needs to understand in detail, these highly effective patterns which occur across all time frames.
Most traders are aware of Divergence, but superficially & the general information available on the internet.
For instance, most traders do not know that there are 3 types of Divergence’s & not all of them are effective.
In addition using confluencing factors like Advanced Fibonacci ratios & having an awareness of price patterns like the ‘most effective trading pattern’….takes Divergence to a whole new level.
Which is what I will be covering in my Master Class at the IX Investors Show.
Coming back to the GBP/USD trade.
This Shakeout leading to the bullish Divergence happened precisely at the 78.6 Fibonacci level, which gave us 3 confluencing factors……and time to get in a buy trade.
To be on the safe side, we placed a ‘Buy Stop” above the range box.
What happened next was unexpected, as price exploded to the upside with huge momentum.
Now some folks may call this luck, but I say its preparation meeting opportunity.
Whatever the reason for price to move at this time, we were in a high probability zone.
Once price moved a certain distance, we took some profits by closing some lots…and moved our stop towards the entry. These are steps of ‘Trade Management’ that we have built in as part of our ‘Trade Plan’ which is crucial for account growth.
So, at this stage, we are almost in a free trade, having taken some profits & reduced our risk considerably.
This places us in a comfortable position, that even at this stage if price reverses direction for some reason…which it may…we have walked away with some profit & no loss.
As one can see, trading is not just ‘Buy & Sell’, but a combination of different factors, all applied together by preparing a cohesive Trade Plan.
If you are interested in learning more, attend our event & we hope to see you there.
Please feel free to get back if you have any questions.