Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
Click here to get access to the same charts I use.
Two weekends ago I discussed a potential reversal pattern on the GBPCAD that if confirmed would alter our approach to the pound cross over the coming months.
But before we get to that, I want to point out the June 22nd bearish pin bar. That signal was the reason I wrote about the GBPCAD on the 24th of June, the head and shoulders was more of an afterthought.
For those who are familiar with the 50% pin bar entry method I teach, you’ll notice that the price action here was spot on. In fact, the June 25th candle only managed to spike nine pips above the 50% retracement of the pin bar’s range.
Those who utilized this method are up 400 pips at the time of this writing. With a 100 pip stop above the June 22nd candle, that’s a 4R trade or 8% (unrealized) profit if risking 2% of your account balance.
Now that the pound cross is 300 pips lower from its June 22nd close, I want to turn your attention back to this massive 1,500 pip structure.
We have to go all the way back to December of last year to identify the left shoulder. The head of the pattern is the March high from earlier this year, and the June 22nd pin bar appears to have carved the right shoulder.
I always look for head and shoulders patterns that have taken at least three months to form. It’s why I don’t trade them on anything lower than the daily time frame.
The potential topping pattern you see below checks out as it’s already taken seven months for the pair to get this far.
Another consideration is whether or not the two shoulders occupy the same horizontal plane.
The easiest way to determine that is to draw a horizontal level from the top of the left shoulder. In this case, that level comes in at 1.7465.
Does a considerable portion of the right shoulder fall below that level? If yes, they occupy the same horizontal plane, and you’re good to go.
I also want to see an ascending neckline, not a descending one. The blue level below is moving from lower left to upper right, so no worries there.
As you can tell, the GBPCAD has all the traits I look for in a head and shoulders pattern.
However, there’s one essential ingredient missing…
A daily close below the neckline. Remember, I use New York close charts where each session closes at 5 pm EST. You can get access to the same charts I use by visiting this link.
For those who remain short from the June 22nd pin bar, a daily close below the neckline could provide an opportunity to scale in. For others, it could offer an initial entry.
Should the pair confirm this reversal pattern, the objective comes in somewhere around the 1.5650 handle. It just so happens that 1.5650 is 42 pips below the 2016 low of 1.5692. My guess is that by the time this thing confirms (if it does), the objective will fall closer to 1.5700.
I will discuss intermediate support levels if and when the GBPCAD reaches the neckline at 1.7130/40.
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