Last week I did write about the GBPCAD… I was waiting for it to break the short term range it has been trading in for the last couple of weeks…
Today I’ve been getting several emails about it, because you know what, the GBPCAD already broke that range…
The most common question I got in those email is:
Should I trade the breakout of the range?
My answer is: NO.
And here is why…
When the market trades near a long term (LT) important levels (which was the case of the GBPCAD) there is a fierce battle between buyers/sellers trying to define which group is going to win.
If sellers won, the market would go down, and if the buyers won, the market would go up.
But sometimes buyers and sellers are willing to take the market a little higher/lower (i.e. breakout through the range), just to see if there are enough sellers/buyers on the other side. And this is what makes a false breakout.
So most of the time, false breakouts appear when the market trades near a LT important level.
So next time you see a short term range near a long term level, you better not trade that breakout, because most false breakouts appear right there.
Makes any sense?
Anyway… here is my plan for the GBPCAD.
GBPCAD Trading Plan
Let me show you this chart:
I have two possible scenarios:
- If the GBPCAD retraces back to the support level and I get a significant candlestick pattern with upward pressure I will go long.
- If I don’t get that pattern, but still the GBPCAD goes up, I’ll set a buy stop order to go long, 10 pips (plus spread) above the previous high, which is: 1.8111
Another possibility is that the GBPCAD goes back inside the range, in that case, I’ll have to reassess this analysis.
What do you think about taking breakouts?
What about the rule I use not to take breakouts when the market is trading near a LT level?
What about my trading plan for the GBPCAD?
Let me know in the comment section.