If you recall earlier, I had posted a trading signal indicating where it would be a good time to enter a short position with GBP/USD.

Let’s have a look at the trade thus far.

As you can see, the trade is going well into our direction.  Currently, the trade is up 195 pips. Now do not go counting your money yet. A trade is not profitable until it closes.

As of yet, I have no intentions on pulling out of this trade. Price Action itself is dictating this. Perhaps when it hits the prior low it might retrace a bit, but I do suspect pricing will continue on its current bearish trend.

I wanted to point out another pattern that helped validate this trade. Nial Fuller, a renowned price action trader, has coined the name of a particular price action pattern. Have a look at the candle that immediately preceded the doji candle. During the beginning of the day price made an attempt to reverse. However, a new high was rejected and price fall. What was originally set to be a bullish candle, ended up a bearish candle. Nial Fuller calls this the “fakey” set up.

As Nial is a bit more of an aggressive trader, he would have taken the trade at the immediate opening of the next candle. And as you can see, he would have been in a position to profit more pips than where my entry was. That’s quite all right though. I’m a conservative trader and am content entering into a “safer” position.

At this point, I have no intentions on repositioning my profit target. I do suspect on a long-term basis that this trade will drop another 800-900 pips over the next couple weeks. However, one move I will make is to move my stop loss to break even. It makes no sense that I would even allow the market to take any money from me at this point.

By moving my stop loss to break even, I can be rest assured that I can play out the remainder of this trade risk free.

Allow me to take you through some trade analysis of a limit order that I recently placed.

This set up was taken on a daily chart, price action being the primary focus. Only indicators used was a trend line and Fibonacci retracements and extensions.

Over the last few weeks, GBPUSD has been on a downtrend. The market began to retrace a bit after it hit the area of support around 1.6100. We can determine that to be an area of support as if you look back you can see that price has dropped to that area only to bounce back up.

As price began to rise last week, I drew an upward trend line. The idea behind the trend line is to not get faked out by any bearish signs that might compel me to enter a short trade prematurely. I would more or less be looking for a daily candle to break through the trend line and then close below it.

Two days ago price did turn around. It hit the trend line and bounced back from it a bit. In doing so, it created a bearish candlestick pattern known as an evening star. The next day solidified the bearish move by closing below the trend line. By having both the evening star pattern and the break of the trend line, it was safe for me to say that the market was currently bearish.

However, I wanted additional confirmation that this was just a retrace and not a complete reversal in the market. I drew Fibonacci lines from the high made about a month ago to the low from a couple weeks ago. It was discovered that the evening star pattern originated around the 61.8 retracement.  That particular line is considered to be the Golden Ratio as price commonly bounces off that area to return back to the original trend.

This gave me all the information I needed at this point to know that I was going to be entering into the market with a short position. Now it was a matter of selecting my entry, my stop loss, and my profit target.

My entry would be 10 pips below the low of the candle that closed below the trend line. My stop loss would be 10 pips above the high of the evening star pattern. And finally I redrew Fibonacci lines again, this time going in the opposite direction. I wanted to mark my profit target at the 161.8 Fibonacci extension.

I found that it is common that a successful bounce of the 61.8 retracement line can push the price towards the 161.8 extension line. It does not always happen like that, but often enough that I always set that as my initial profit target.

If this trade does move in my direction, I do suspect that I might have to stay in the trade for a couple weeks. A lot can happen in that time. I might pull out early with profit. I may even add more units to the trade. In the end, I will allow price action to make that determination for me.

This article is going to take a leap of faith and assume you understand the basics of Fibonacci retracements and extensions. If not, have no worry. Here is a great resource to obtain such information.

Fibonacci is an incredible tool to determine possible price reversals. The key is to not go in with an assumption on where price will reverse. It is well known that the 61.8 retracement line is a fairly significant reversal point. So much as they consider that line to be the Golden Ratio. However, if you were to solely place trades at that line you would be setting yourself up for disaster as Forex could care less where you place your limit orders. Let the big players push around price. Figure out where they are moving price, make your entry, and exit before price reverses on you again.

Price will always tell you where it’s going. Allow me to give you an example.

I drew the Fibonacci lines from the high of the evening star, to the low of the pin bar. As price dictated, it hit around the area of the Golden Ratio and headed south fast. However quick movements can catch rebounds, so it would be important to wait for price to continue moving in the direction we believe it to move in. So here I would wait until it moved ten pips below the low of the pin bar and make my entry there.

Now that we are in the trade, where would we take profit? This is where Fibonacci extensions come into play.

The above picture shows the same movement, except this time the Fibonacci lines were drawn from the low of the pin bar to the top of the evening star pattern. This created a Fibonacci extension. Our expectation is to wait until price starts showing signs of reversal around one of the extensions. The first and most famous extension is the 161.8.  As you can see, price started pushing away from the 161.8 line. This would have been an excellent opportunity to take profit. As mentioned before, Fibonacci is a great tool. However, learning price action is a must to ensure success trading this method.

We have listed a number of forex trading brokers who provide platforms that allow you to trade using Fibonacci. Remember to always try a new method on a demo account before trading it with real money.

If you are looking for discount antiques and collectibles, you showed up to the wrong swap meet. While Main Streets might be filled with vendors selling their wares for cheap on the weekend, during the week Wall Street is playing an entirely different game.

When you enter the financial markets, you are both buying and selling a currency at the same time. Let’s analyze a currency pair quickly.

Have a gander at GBP/USD.

When you place a long order for GBP/USD you are essentially buying the Great British Pound and selling the United States Dollar at the exact same time. Likewise, when you place a short order for GBP/USD you are selling the Great British Pound and buying the United States Dollar.

To get a bit more technical, you are entering into an agreement between the two currencies that will be unwound at a future date. Interest rates are a variable throughout currencies. As a result, you can be in a position where you can either profit off the difference, or pay the difference. That difference is deemed as the interest rate swap.

Allow me to use an example. For purposes of simplicity, let’s say that the current interest rate for the Great British Pound is 4% and the current interest rate for the United States Dollar is 2% (I wish it was that low!!!).

As mentioned before, when you place a long order on this currency pair you are buying the Pound and selling the Dollar. By holding onto this trade overnight, you will be collecting the interest on the Pound and paying the interest on the Dollar. As a result, you will keep the 2% difference. Likewise, if the opposite were true, and you placed a short order, you would be paying the 2% difference in interest. For long-term traders, the swap paid can be used to hedge a position, or further profit from it.

When a trader is in a position for the purposes of seeking additional profits via swap, the trader is said to be in a carry trade. Traders who seek out carry trades are specifically looking to buy high interest currencies and sell low interest currencies. While on the surface one can get the impression that all they need to do is buy high interest and sell low interest, this is not the case. 

A successful carry trade requires speculation of the currency itself. Let’s revert back to the example of GBP/USD. For you to profit on the difference of the interest, you would have to be in a long position. As a result, you would want to be sure that when you enter the market, the price of the currency pair would be increasing and moving in your favor. If it does not, it’s possible, that while the interest would hedge your position, you could still lose money.

Traders who seek carry trades are generally long term traders. As long as the currency pair is moving in their favor and the interest is being paid in addition to their profits, they will remain in the trade. Such trades can be carried on for months, if not years.

Not everyone has an interest in interest (pun intended!). Some people are forbidden to pay or collect interest due to religious obligations. As such, brokers have accommodated those traders so that they can participate in the financial markets without worrying they would be violating their spiritual obligations. An Islamic account is just like any other Forex account, with the exception being that swap is removed from the equation.

The FX Trading Network has recommended brokers that facilitate both types of accounts. Forexyard, one of the top recommended brokers, offers such accounts and much more.