Before you check out my setup, make sure you take a look at my introductory post to know what the Weekly Winner framework is all about.
April 18 to 22, 2011: EUR/GBP Price Action Review
Things were wet and wild on Monday as we saw the euro dive across the charts thanks to a run of risk aversion that hit the markets. Due to this, price action on my usual pairs (EUR/JPY and GBP/JPY) was pretty tricky and there were no legit setups to take.
What I should have done instead was to skip on over to the EUR/GBP charts, as there was actually a pretty sweet setup brewing by midweek.
EUR/GBP fell a good 80 pips from its opening price, but soon found support near the bottom WATR (0.8762) and the minor psychological level at 0.8750. Price stalled here for quite some time, even forming a minor bullish divergence from Stochastic. This was a pretty clear signal to buy, don’t you think?
Just like the oh-so-good bunny that my momma cooked for me on Easter Sunday, EUR/GBP hopped higher, racing all the way back up to the WO, good for about 80 pips.
I believe the best way that I could have played this setup would have been to buy at .8760 and aimed for the weekly open price around .8840. Using a tight 40 pip stop, this would have resulted in a 2:1 reward-to-risk ratio. I could have also pressed it by adding another position at 0.8800, which would have increased the R:R ratio to 3:1.
So that makes two weeks in a row that EUR/GBP WATR has held. Will it make it three in a row this week? Let me know what you think by hitting me up with some comments below or through Facebook and Twitter!