It’s common for a pair to carve out a range after a large, extended move. It’s a way to consolidate before the next move. The rejection of 1.59 in GBP/USD yesterday and today is evidence of a similar pattern unfolding in cable.
Cable daily chart
The rule of thumb is that these episodes generally resolve themselves in the direction of the broader trend, in this case higher.
We’ve been monitoring a similar pattern in USD/JPY for weeks.
USDJPY wedge
Four ways to trade these types of patterns:
- Play the range
- Buy at the bottom of the range only, hoping for a breakout on the top
- Go with a breakout in either direction
- Wait for a breakout and then buy the buyer’s remorse/sellers remorse retracement