GBP/USD – Moving Average MACD Combo Trade

By Russell Glaser – The Cable continues to move lower and is setting up an opportunity to short the pair and enter into a trend at the beginning of the move.

Since the August high the price of the GBP/USD has fallen. The long term trend line has been broken and the trend has shifted to the downside. Now the GBP/USD is ripe for an entry short.

The trade setup uses the 50 and 100 day exponential moving averages (EMA) along with the MACD. The trade can also use a simple moving average, but the goal is to enter into a trend at the early stages in order to capture the most from the directional move. The exponential moving average adds more weight to the most recent close. This should help to get into the trade quicker.

Once the price falls below the farthest moving average by more than 10 pips, an entry short should be made. Currently the 100 day EMA is trading at 1.5335. Today the low for the GBP/USD was 1.5326, 1 pip shy of triggering our trade. It is apparent that the 100-day EMA is acting as a significant support level.

A filter for the trade is the MACD histogram. The MACD histogram is currently trading at -34. If the histogram had not moved into the negative territory, the trade would be rejected.

A stop can be placed at the 5-day high of 1.5600 to limit losses if the price goes against the trade.

Profits should be taken at 2x risk, or roughly the early June high at 1.4770.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

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