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Fan Yang

EUR/GBP - Exploring the Current Range-Trade Idea

EUR/GBP has been choppy and might be a good candidate to employ some range-trading tactics. Let's take a look at a trade idea of shorting around the current range resistance. 

EUR/GBP Daily Chart

(click to enlarge)

Range-Bound:
- We can see that EUR/GBP has been essentially range-bound since July of 2016 between roughly 0.8320 and 0.9304.
- There is also a smaller range in the middle between roughly 0.8630 and 0.9100.
- Let's first focus on the inner range. If price breaks out, then we will look at the larger range. 
Reward to Risk:
- Let's say we have an order to short EUR/GBP at 0.90 with a stop above 0.91 i.e. 0.9160.
- We would need a target at least twice as much for a 2:1 reward to risk.
- If the chance of getting to that target before going to the stop is 50:50, this trade would be worth considering.
- In this case, the required target would be 320 pips lower, around 0.8680.
- I think there is a better chance if we have our target above 0.87 i.e. 0.8750.
- In my opinion this is a 1.56:1 reward to risk trade with 50:50 success. 

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