GBPUSD: Volatility Event Looming After Recent Bearish Dive
The daily candle chart below shows the price history of the Great British Pound (GBP) versus the United States Dollar (USD). This currency pair is known as GBPUSD, and is trading near 1.6293 around time of publication today.
Last time this pair was reviewed in the Ideas You Can Trade series, GBPUSD had begun to get bearish, and was described as having entered a down-trend. Since then the pair dove steeply and eventually found support near 1.6058 on September 10th, nearly 600 pips lower - yet has since recovered to current prices.
While the pair has leveled out since that drop, the Scottish Referendum vote expected tomorrow may be causing "a calm before the storm" and for traders to wait and see whether the vote is in favor of Scotland breaking away from the United Kingdom (gaining independence for the first time in 307 years) or remaining within it (as part of the UK, as it still remains today).
WorldWideMarket's Technical Strategist Edward Moya recently covered the GBPUSD in Today's Trading Edge, ahead of tomorrow's vote, as volatility in the pair could bring high risk/reward opportunities.
Since the event may take several hours to a few days to decipher, as it unfolds, there could be periods of accompanying extreme volatility before, during and after the event. Thus traders should exercise caution with their position sizes, stop/limit sizes, and margin/leverage settings.
Below are examples of how to trade a bearish continuation or a bullish reversal:
1. BULLISH BUY ENTRY ORDER: Create a “Buy Entry Stop” @ 1.6401 with a Limit to take profit @ 1.6598 and a stop-loss @ 1.6297 Risk/Reward Summary: Limit risk = +197 pips profit / (-104) Stop-loss risk = Gain to Loss ratio = 1.89
2. BEARISH SELL ENTRY ORDER: Create a “Sell Entry Stop” @ 1.6099 with a Limit to take profit @ 1.5952 and a stop-loss @ 1.6179 Risk/Reward Summary: Limit risk = +147 pips profit /(-80) Stop-loss risk = Gain to Loss Ratio = 1.83
Daily candle chart:
Weekly Candle Chart Zoomed in:
Weekly Candle Chart Zoomed out: