Price moves in a never-ending cycle of these things, followed by those things, and then these things again, and so on. See below:
These things are the impulse/trending moves. They dominate your screen; they close strongly, they often don’t have much wick (the candles) and price moves.
Those things are your retraces or consolidations in price. Price doesn’t go anywhere, they are “wicky”, and you see alternate colours in candles.
Here is a little secret: It’s much easier to trade when price is trending than when price is consolidating. Sounds obvious, and trading during both periods will prove the point to you as well. Many traders refuse to accept this simple reality and stubbornly insist on taking the same amount of trades (and style of trades) under both conditions.
Right now, the majors are mainly in a those things phase meaning I’m more interested in protecting capital, than getting slapped around in a tight market.
So how would I trade GBPUSD? Simple really:
The 4-hour chart above shows Friday’s clear break. Monday’s open decided to put price right back into the channel. I still like this one for a short, but I’m going to need to see price trade below the channel, and come back and retest it from below. With a bit of patience, we could see a move all the way down to 0.8800, some 300 pips away.
The EURJPY is doing a lot of what I’d like to see the NZDCAD do. We have a trendline break and a retest. Now I need a big bearish candle to print, suggesting more downside to come.