The British Pound – A Low Risk High Reward Trading Opportunity

The British Pound will present a trading opportunity next week.

Here we will look at it and how you can trade it for profit

The British Pound Is Testing Resistance

If you pull up a chart (we are using futuresource.com for this example) you will see that prices are trying to test January’s high on the daily chart.

Of course, this resistance will either hold or give way, either way a trading opportunity is presenting itself.

On the chart look at these two indicators:

The Relative Strength Index (RSI) and the stochastic.

Both are indicating price strength.

The key to this trade is to watch the above indicators as prices test the high.

If the RSI starts to fall (notice how previous moves into the over bought zone have indicated a top) and the stochastic momentum starts to weaken then resistance should hold and the odds favour price falls.

Watch specifically for the stochastic lines to cross to the downside with bearish divergence.

This will give the bears control, as it indicates a weakening of momentum.

The stochastic is simply the best timing tool for entering trades and if you don’t know how it works you should! Check out our other articles.

If prices however can close above the January high, then the bulls are in charge and we have a breakout to the upside.

WAIT FOR CONFIRMATION.

Don’t jump in and try and predict where prices are going to go – Wait for confirmation either of:

SA breakout and close above January’s high (on a close basis) or a weakening of stochastic momentum into the high.

By doing this you will be letting price action tell you which way prices are going to go.

This trade is at critical resistance and you need to let price action indicate which way prices will go and take action accordingly.