100 Pip Plus Move on GBP/USD – Reversal Bar

By: Huzefa Hamid

Thursday (20 May) produced an interesting opportunity on Cable (GBP/USD) that tied in to my analysis from my last post. In the previous post, I pointed to the validity of the recent support at the 1.4240 area that met some major Fibonacci extension levels. Here are the charts again.

And here is a combined chart of all the Fibonacci Extensions:

Upon that analysis, if you were monitoring the charts to look for a long entry assuming that support area of 1.4240, Cable produced a solid reversal bar on the hourly chart.

Chart reference: hourly bar 2010.05.20; 10:00 EST

I saw this as a key reversal bar for several reasons: it “spiked” down into the area of support highlighted in my last post; the open and close are near the top of the bar and lastly the bar itself had a good range. You can see the same reversal also on the 15 minute chart below just as clearly:

Chart reference: 15 minute bar 2010.05.20; 10:15 EST

Aside from the Fibonacci points in the above charts, there was a fourth major extension that this reversal bar hit very cleanly: (The reversal bar is marked with the horizontal blue line.)

Chart reference:

Hourly bars

Point A – 2010-04-15; 02:00 EST; 1.5522

Point B – 2010.05.07; 05:00 EST; 1.4475

Point C – 2010.05.10; 09:00 EST; 1.5053

To recap on Fibonacci Extensions, the price moved from Point C 78.6% of the distance from covered by Point A to Point B.

The previous resistance on Cable was 160 pips above the close of the reversal bar. This entry should have netted a trader at least 100 pips with an early exit. I personally traded from the 15 minute chart that allowed me to keep a tighter stop (just below the low of the reversal at 1.4227) and a better entry.

As I always say, never trade without stops and keep an eye on your risk reward ratios at all times.

H. Hamid