The GBPUSD has formed a large and very obvious Bearish Engulfing Bar = BEEB on the 4 hour price action chart that is rejecting a major daily resistance area. If you are a regular reader of this blog and the daily commentaries you will know that we often discuss how the best trade setups are the ones that are the most obvious and the ones that stick out like a sore thumb, pretty much like this engulfing bar does on the 4 hour chart.
The other factor we also discuss regularly and go into depth about is the major supply and demand levels and where you need to hunt your trades and this engulfing bar is formed at a daily resistance level as the first daily chart shows below.
There is much more to price action trading however, than just finding trigger signals such as engulfing bars at support or resistance levels and then taking trades and this is where a lot of traders come unstuck. Anybody can learn to find a one candle formation and spot it at a daily level and enter a trade.
The key is putting the whole price action story together. Reading the whole chart and all the information it is giving you to make a decision, including how you are going to manage your trade is so very important.
Far too many traders get into their trades, get stuck and try to guess or panic their way out of the trade. A major part of your trade is looking either higher or lower and seeing if your trade has space to trade into and after price breaks if their will be room to easily make a free flowing move.
This engulfing bar on the GBPUSD 4 hour chart is a prime example. Whilst it still may go lower yet, with a quick look lower we can easily see that price is trading into a major confluence area of support. That level is going to take some breaking. If the support level does break, then we may see a nice move lower, but the question becomes; do you want to take that risk? And each individual trader has to weigh that up with each and every trade that they look to take.
Daily Chart – Major Resistance
4 Hour Chart – Bearish Engulfing Bar = BEEB
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