Looks like we might see a weaker GBP next week. If price goes below 1.50500 on Monday (the blue line) I will short the GBP/USD and aim for a profit around 1.49770 (bright green line, about 70 pips) for half my position and let the other half run with a profit target of 1.48500 (2013 low).
If I do enter the trade I will put my stop loss around 1.51100 (red line). I will also use a time stop on the position. If this trade is still open when the ISM Manufacturing PMI arrives on Monday afternoon, I will probably move my s/l to break even or consider closing the trade with a loss even if my s/l is not hit.
The risk/reward ratio is not great, however we do have a support area between 1.50660 and 1.51000 so it does not make any sense to use a closer stop. I think the trade is worth a chance even with a 1:1 risk/reward due to the high probability setup.
So, why do I think this is a high probability setup.
- It is in the direction of the bigger trend (daily chart)
- We have a short term trend line pointing down (red line)
- We are just below a resistance area 1.50660 (dark green line)
- The pair has recently been trading at lower price (last week)
- The profit target is with in the daily ATR range so it is realistic even without any major events moving the market.
