Trade Idea: Quick Pullback on GBP/USD

I waited patiently for the Brexit dust to settle to catch this quick Cable pullback before markets closed on Friday. You can imagine how challenging it was for me to sit on my hands while the actual votes were coming in, as pound pairs moved by thousands of pips then!

As you can see from the 1-hour chart of GBP/USD below, price pulled up to the 38.2% Fibonacci retracement level after its sharp dive and I decided to hop in this pullback right away.  I set my stop past the 61.8% Fibonacci retracement level and the 1.4500 major psychological mark in case the pair still makes a higher correction later on.

GBP/USD 1-hour Forex Chart

GBP/USD 1-hour Forex Chart

If you’re wondering why I thought to short at such a shallow pullback, lemme give y’all a zoomed out view of the pair’s weekly chart to show why that area is so significant. See how it lines up with this year’s low and is also around those record lows back in 2010?

GBP/USD Weekly Forex Chart

GBP/USD Weekly Forex Chart

With this major breakdown, I’m eyeing a max profit target at the 1.2000 area but I’ll be trailing my stop to lock in profits along the way. I’m also considering adding to my position every 400 pips, depending on how price action unfolds. After all, the Brexit is likely to cause long-term repercussions on the U.K. economy and might push the folks over at the BOE to dole out stimulus. Meanwhile, the Brexit could also convince the Fed to hold off any interest rate hikes but the U.S. dollar should still be a favorable safe-haven.

Here are my trade details:

Short GBP/USD at market (1.3880), stop loss at 1.4525, max PT at 1.2025. I’ve risked 0.5% of my account on my initial position but I’m open to adding if bearish momentum stays in play.

This initial trade structure should give me a 2.87-to-1 R:R and implementing my STA would increase this potential return-on-risk. I’ll keep you posted on when I add to my position so stay tuned to my blog updates!

As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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