By Rob Colville on December 12, 2017 in
The good old EURGBP – you know where you are with it. Or do you? If you want to know how to trade EURGBP then you might have to put what you think is right to one side, because simply understanding how to use this kind of currency doesn’t necessarily translate exactly into being able to trade in it. So roll up your sleeves: it’s time to see how to trade EURGBP like a pro.
It isn’t always the case that just because you understand how something works that you should rush headlong into trading with it. Every trade is different, which is why you need to look at the evidence of what’s been happening in the weeks leading up to now before you go ahead and trade EURGBP – or anything else, for that matter. When it came to this particular trade, we did our research and weighed up the pros and cons of entering into the trade.
One of the things we noticed first was the false breakout. It’s hard to miss, to be honest, and it’s something that we love to see before we commit to a trade. Why? The false breakout happens when the price looks set to perform much higher than usual, only to fall back to where it was, or below. Why is that good? It’s good because a lot of traders will have sold when the price went high, meaning that, by the time it went low again, it was cheaper. We can then snap up some trades in EURGBP at a good price, ready for when the real breakout happens.
And we were right. By the time the false breakout had reassessed and reset, and the level was back down low again, we can see a nice bullish pin bar reversal. This means there was a sharp reversal in how well the EURGBP was doing. It doesn’t matter what the reason behind this was, as traders all we’re interested in is what’s happening now, and what will happen next. So we’ve spotted this, and all the signs look good for how to trade EURGBP.
It seems as though it’s good to go. When we look at how to trade EURGBP, the false breakout and the pin bar reversal at definitely on the ‘to see’ list. Next, we need to look at where we would put our entry point and stop loss. Taking the last week’s ups and downs as our starting point, it makes sense to put out entry just above the highest entry for last week, and out stop loss just below the low. The target should be just over the top of that range. That would make our reward to risk ratio 1.73:1. That’s a fair ratio in our books.
If you don’t want to try our above suggestion, something else you could do would be to trade on the weekly timeframe and fifty fibbing it. Fifty fibbing? It’s using a 50 percent retracement on the Fibonacci strategy. We know we can do this at this point because of the bullish divergence we can see in the weeklies. Doing this will increase the reward to risk up to over 3:1. There is a downside though; the price could keep rising and not fall low enough to trigger us since we’re sitting at the midpoint. So there are plenty of things to think about when it comes to how to trade EURGBP.