GBPUSD: Sharp drop tests below medium term support
The chart below shows GBPUSD testing below a medium term bullish support line (point 1 on chart) after failing to find support and continuing down a steep bearish channel (point 4) which it has just re-entered after a failed escape. This bearish channel (point 4) was noted in late June as a "very bearish potential continuation" in a previous article regarding GBPUSD.
Considering the momentum, and failure of bullish support, unless bullish support lines (point 1 and/or 2 or 3) can be regained and provide a sufficient bounce to reverse the bearish momentum, GBPUSD may look for support near 1.5000.
However, there also exists a parallel bullish support line below the existing support line (point 1) intersecting near 1.5040 for today and which was barely met with by the low of the current daily candle (1.5059). Therefore, if both support lines fail, the short term bearish channel may provide further continuation within its lines.
Below are examples of how to trade a bearish continuation if momentum continues or a bullish reversal due to short term correction to the upside.
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.5124 with a Limit to take profit @ 1.5194 and a stop-loss to cut losses @ 1.5073 Risk/Reward Summary: Limit risk = +70 pips profit / (-51) Stop-loss risk = Gain to Loss ratio = 1.37
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.5057 with a Limit to take profit @ 1.5014 and a stop-loss to cut losses @ 1.5100 Risk/Reward Summary: Limit risk = +43 pips profit / (-43) Stop-loss risk = Gain to Loss Ratio = 1.00