GBPUSD, Daily Chart, 22/02/13 @ closing of trading week


Pair is on a strong Downtrend and now it’s Correction time 🙂 We just had a very reliable reversal Sign from HAMMER Candlestick formation. Hammer, when appears after a Downtrend, Confirmed with Stochastics or RSI being in Oversold Zone (below or around 20) is absolutely valid. Furthermore, we see here a BULLISH DIVERGENCE between Price (going to LL) and Stochastics (going to HL). So, judging from the Downtrend’s strength, we expect a retracementat at least reaching the 50.0 Fibonacci level. But we see that there is an even stronger Resistance Level just above it. So, that’s where we’ll place our TAKE-PROFIT Target (@1.5828) We enter LONG either at next Candlestick’s OPEN (@1.5247) or higher, depending on our Trading profile (aggressive/conservative), placing our STOP-LOSS a few pips below Hammer Candlestick’s tail which coincides with a very Strong Support for now (@1.5115). We’re risking 132-150 pips for a profit potential of 580pips. That represents a healthy 1:4 Risk/Reward Ratio which is more than fine. What’s even better is, that once we EXIT, we can patiently wait for our conditions to be met, to enter SHORT as the pair will start falling Downwards resuming its Main Trend.