The pound is rising along with growing confidence that the Conservatives, under Prime Minister Boris Johnson, will win next week’s UK election. In fact, the pound reached highs on May 5 against the dollar, as traders raise bets in anticipation of their victory.
The pound is rising for the fifth day in a row and overcame resistance to the 1.3000 mark, under which the pair has been trading since October 21. We have not seen such a long rally since the first half of April 2018 (when the currency strengthened for seven consecutive days).
With its last movement, the pound completed the formation of the “head and shoulders” movement (within a month and a half range). It seems that the currency will continue the upward trend, which originates from the September bottom.
Just before the breakdown, the 50-period DMA crossed up the 200-period DMA, forming a “golden cross.” This gives great confidence in the stability of the rally, as a wide range of prices confirms the direction of the trend.
The MACD indicator signaled a purchase, and RSI showed an upward momentum as it bounced off the uptrend line and broke through the short-term downtrend line observed since mid-October.
The fact that the figure of the continuation of the movement of the H’S was formed after the breakdown of the downtrend line (being above the 200-period DMA and forming a “golden cross”) speaks in favor of continuing the rally.
The next important resistance will be the mid-April 2018 mark, which is at the top of the failed bottom of the H’S between August 2018 and May 2019. Then the fall cost the pound more than 10%, and now it is going to win back losses.
Conservative traders we should wait for new highs above 1.3385 from March 13 and make sure that the entire supply is exhausted before relying on the continuation of the uptrend.
Moderate traders can open up long positions if the price dynamics form a savings model above the neck line of the H’S.
Aggressive traders can take a risk and sell when there are signs of resistance, counting on resistance to the 1.3000 mark and natural market forces causing a pullback.
An example of a position
· Admission: 1.3300
· Stop loss: 1.3400
· Risk: 100 points
· Target: 1,3000
· Profit: 300 points
· Risk-to-profit ratio: 1:3
Note. Example demonstrates the components of the trading plan. The success of the strategy is measured by the totality of the deals, not by one position. In addition, both risk and Profit can be changed Depending on risk-averse.