GBP/USD short opportunity – Head Shoulders Pattern In Daily Chart

• The long term trend in the weekly chart is down
• The upwards retracement of the steep downtrend has potentially reached its top
• This opens a short opportunity for the GBP/USD currency pair

From July 2008 to January 2009 the GBP/USD dropped from 2.0000 to 1.3500. The following upward retracement found its maximum at 1.7000 on 05.08.2009. See weekly chart below.






There is a good chance that the retracement found its top at 1.7000 on 05.08.2009. The daily chart displays a Head-Shoulders pattern that supports that possibility. The Head-Shoulders is a top reversal pattern, so in this case the GBP/USD could turn down again. The neckline of the pattern at 1.6200 has not been broken yet and therefore the pattern is not confirmed. If the pair closes below the neckline, further downward potential to 1.5300 opens up.





Entry Strategy
The most conservative entry option for a short position is to wait until the Heads-Shoulders pattern gets confirmed by a break of the neckline at 1.6200.

A more aggressive option (with more risk and more reward) is to enter a short position before the neckline (resistance) gets broken. Recent price action has been kept under the 1.6500 level. One option therefore is to establish short positions on intraday rallies towards 1.6500.

I took up a small short position at 1.6388. Stop Loss 1.6500. The position is “slightly in the money” with 30 pips (morning 24.09.09, Sydney time). I will consider increasing the position in case the pair goes lower.