The GBPCHF has rallied after a sell-off took this currency pair from its resistance area, visible in light grey in the above H4 chart, down to its support area which is visible in light blue. The sell-off was steep as forex traders took profits due to a combination of fundamental as well as technical factors. After touching its support area, a short-covering rally emerged and allowed the GBPCHF to rally back into its resistance area where a double top formation has developed.
Price action is trading between the middle band and the upper band of its Bollinger Band indicator, which supported the sell-off as well as rally. All three Bollinger Bands are sloping upwards, but the double top formation is likely result in a reversal as bearish pressures are increasing which leaves this currency pair vulnerable for another profit taking sell-off. A breakdown below the middle band is expected to initiate a move lower while a breakdown below the lower band will accelerate the move.
Forex traders are advised to enter short positions above 1.4630 which will position them to profit from the expected sell-off. A breakdown below the middle band of its Bollinger Band indicator can be used for first entries, but conservative forex traders may wish to wait for the breakdown below its lower band before entering this recommended trade. A take profit target of 1.4200 has been selected for a potential profit of 430 pips.
Forex traders should protect this trade with a stop loss level at 1.4800 for a potential trading loss of 170 pips which will result in a Risk-Reward (RR) ratio of 2.53.
Short @ 1.4630
TP @ 1.4200
SL @ 1.4800
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