To better understand my trading framework and see why I take note of the previous week high (PWH) I suggest you check out the introductory post on the Weekly Winner!
Well darn my luck! Remember that range on the 4-hour chart of EUR/GBP that I had spotted about two weeks ago? Well, it held again last week, and boy did it deal out pips!
The resistance area of the said range was set in the area of .8870, in the very same area as the PWH. This level was actually tested several times last week, but each time price tried to cross above it, it held like a boss!
At first, it actually seemed like the pair was destined to break higher. The pound was one of the poorest performers at the start of the week, and the way the pair had been ominously clawing at the PWH resistance level. However, towards the end of the week, the euro began to edge lower as weak data and renewed concerns about the European debt crisis dragged the shared currency lower. Apparently, there were rumors going around that Greece might need a THIRD bailout package.
Anyway, there were actually a few opportunities to scalp off the PWH early in the week, each of which would’ve been good for quick 30-pip winners. But the setup that caught my eye was the one on Wednesday, when price formed a long-legged doji right on the PWH just as Stochastic turned down from overbought territory to reveal a bearish divergence.
Confirmation from candlesticks, overbought Stochs, bearish divergence… That’s money in the bank right there! All we needed to do was set our stop about 30 pips away, just above the doji’s high, and take profit at the WATR. If we had done so, we would’ve made like 50 Cent and laughed straight to the bank with a 2.7:1 winner!