August 18, 2009

Supertrend Indicator Turns Bearish On The GBP/USD Pair (17/08)

I mentioned last week that 1.6425 was a critical level because if the price of the GBP/USD pair closed below this level on any one day, the Supertrend indicator would turn red and possibly signal the start of a new bearish trend. Well this is exactly what happened yesterday and I think it could be highly significant.

This indicator has been green, ie bullish, since 24th March when the price was around 1.45 and has been rising ever since, along with the price. Therefore this trend has been in place for a very long time, which is why I think it's significant. What it does mean is that I shall be automatically looking for short positions on the 4 hour chart for this pair, in accordance with my own particular trading rules.

So if the price is set to fall, what kind of price targets should we be looking at?

Well if we were taking long-term positions on the daily chart I think the first target is the EMA (200). This currently stands at 1.6027 and a move below this level would certainly add weight to any downwards move.

Longer term is anyone's guess but if we use fibonacci levels to give us a few rough ideas, we get price targets of 1.5691 (38.2%), 1.5273 (50%) and 1.4856 (61.8%) if we go from the low point of 1.3504 earlier in the year to the high point of 1.7043 a few weeks ago.

As always there's no guarantees that the price will fall at all, but forex trading is all about probabilities and I would say that there is a high probability chance of the GBP/USD falling back in the coming weeks and months.



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2 Comments on Supertrend Indicator Turns Bearish On The GBP/USD Pair (17/08) »

August 19, 2009

Masud @ 9:37 am:

Hi James,

You are doing a gud job.I find your 4hr trading strategy very useful.Though,i cant really get how d supertrend works,how to follow the red/green lines,maybe u can help out in that.From your strategy,i have learnt to be more patient with my trade.

Two profitable trades in a wik is far more better than taking trades all time without much success.

Thank you very much.


Note:Plis kindly give more explanation on the red/green lines.How take positions on it.

James Woolley @ 3:28 pm:

Hi Masud,

The only purpose of the Supertrend indicator (on the daily chart) is to tell me which way I should be trading on the 4 hour charts.

Green = bullish, take long positions.
Red = bearish, take short positions.

So with regards to the GBP/USD, for example, I am now only taking short positions on the 4 hour chart because the daily Supertrend has just turned red.

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