Friday, September 30, 2016

Trading with Trendlines: Will GBP/USD Continue Dropping ?

No matter how perfect the trendline or the price channel there is always a breakout. And this is what we are waiting for – a breakout that we can use to trade.

This is what happened with GBP/USD, which broke below the support trendline of the price channel from 1.29258 to 1.30214 and reached its limit of 67 pips, i.e. the exact height of the channel at its base that was projected to the downside from the breakout level.

This is where we should start looking for an opportunity to draw new trendlines.

Above all else I want to point out that the 1.29500 – 1.29300 zone is a strong support zone and on the chart we can see that the pair has reached it and rebounded from it from it many times, including in the past few days.

In case there is a breakout, the support trendline of the move to the downside (the red line) will offer the next level of support, which is the zone around 1.28900 - 1.28700.

In the alternate scenario there will be a move to the upside towards the support trendline that the pair broke below, or even towards the resistance trendline (the green lines) of the trend channel.