Trading the British Election Results
On the GBPUSD charts below, the monthly chart clearly shows that the market is in a downtrend. Although price has retraced back to the ATR (red cross), price has not been able to break through this resistance area. Additionally, the Stochastics is indicating the market is overextended to the upside. However, the weekly chart is showing a potential reversal to the upside. Price has broken through the resistance (ATR) and is currently returning to the area to ensure that support has formed. The anticipated test for support is also confirmed with Stochastics indicating overbought status, as well.
The daily is chart is showing that price should return to the 1.3023 area to test for resistance, which is also confirmed with the Stochastics turning up, after being in the oversold area. Finally, the 240 minute shows a retracement back down to around the 1.2800 area.
While this may sound confusing, actually the combination of shows that price is seeking an area that will offer a stronger support area so that price can move up. Here’s why.
In order for price to move up, support on the higher timeframes needs to form. This is usually formed at the weekly ATR, which will also form a higher low on the monthly chart. Although the daily chart is showing a potential for support currently at around 1.2745. it is also showing a significant level of resistance at the 1.3000 – 1.3025 area. This resistance area will then push price down to an area that will offer greater support (weekly and monthly charts) form price to move up again.
The 240 minute chart is also confirming a potential upward movement provided that when price retraces to the ATR, which is around 1.2800, it supports a move up, especially since it has formed a “W” pattern.
How will all of this likely play out? More than likely we will see a short-term rally on the GBPUSD followed by a mass exodus of positions prior to the British election results. The key will be if the support forms at the anticipated levels on the weekly chart (around 1.2510).
Traders could use a combination of the weekly and daily binaries to trade the British election results. Of course, if either the resistance fails to push price down, or support does not form, then any potential loss is limited to the risk paid on entry.