A Swing Trade That Made 230 Pips In 3 Days!

This is the detailed analysis of a swing trade that made 230 pips in 3 days. When we trade on H4 timeframe, each swing trade can make something like 200-400 pips. The most important thing is to find an entry with low risk. Now if you have been reading my posts where I have described my divergence trading system, you will be able to follow the post below. If you haven’t read my previous posts, please revisit so that you can follow what I describe below. If you have read my post on Trading Economic News Releases with Divergences then this is another example of how divergence can make you a lot of pips trading economic news release this time it is the GBP Prelim GDP Q/Q. I have closed the trade and waiting for the bearish divergence pattern to appear now. It seems that a strong bearish divergence pattern is developing on D1 timeframe. More on that at the end of this post. Take a look at the following screenshot of GBP/USD H4 timeframe.

Swing Trade

As you can see a strong bullish divergence is being shown on H4 timeframe. All the three indicators MACD, Stochastic and RSI are showing strong bullish divergence. When I spotted a strong bullish divergence pattern forming on H4 timeframe, I immediately shifted to the H1 timeframe and drew a minor trendline. Take a look at the following screenshot!

Swing Trade

As you can see on H1 timeframe, the three indicators MACD, Stochastic and RSI are once again showing strong bullish divergence. So I drew a minor trendline as shown above and waited for the price to break it. Price found support at 1.51975. After 5 hours the minor trendline was broken by price action. Now keep this in mind that we draw this minor trendline so that the bullish divergence signal is confirmed. If it is a true bullish divergence signal then it means that price did find support at 1.51975. Incase if it is not a true signal, you can find the price going down again and finding support at a much lower level as compared to 1.51975.

Another point that you need to keep in mind is that when you go long, the Stochastic should be in an oversold condition meaning it should be below 20 and when you go short, it should be in a overbought condition meaning it should be above 80. So when the minor trendline got broken, Stochastic was in a overbought condition so I waited for it to come down to the oversold condition which it did after 8 candles. I got in at 1.52337. My stop loss was placed at 1.51900. My risk is 47 pips. A strong bullish divergence is appearing on H4 timeframe so I am confident that price is going to move big. This was on 23rd April 2013. A divergence signal on H4 timeframe means 200-400 pips so my reward to risk ratio in this case is approx 5:1 (if we expect to make 200 pips).

Now I daily visit the Forex Factory website to take a look at the Economic News Calender. Daily I take note of the important economic news releases that are scheduled for the pair that I am trading. On 25th April, an important economic news release event is scheduled. This is the GBP Prelim GDP Q/Q. The expectation is poor. Market is showing fears of triple dip recession in UK. Now if you had read my above post on trading economic news releases where I had shown that all information was already compounded into the price and the indicators two days before the release of the NFP report. Precisely the same thing happened here. The market is already turning bullish one day ahead of the event. Price and indicators are showing this while the experts are talking of triple dip recession fears. This is another example of how experts can be wrong. You just need to follow price and indicators. Do what they tell you to do. The market is telling us to go long which we did. The actual was much better than what the analysts were expecting.

The market moved up to 1.52875 and then retraced back to the level where we had entered that is 1.52335 on 24th April. On 25th Market moved big.  If you have read the previous post we will close the trade when the bearish divergence pattern will start appearing on H4 timeframe. No bearish divergence pattern appeared and on 25th April  at the time of GBP Prelim GDP Q/Q news release market jumped up and went to 1.54795.

Swing Trade

As you can see on this M15 timeframe, price jumped up at the time of the economic news release with a huge gap. After sometime a bearish divergence pattern appeared on M15 timeframe so I decided to close that trade. Take a look at the following screenshot.

Swing Trade

At that time it seemed that H4 timeframe is also forming a bearish divergence pattern. But it did not form a proper pattern so I haven’t gone short. I am waiting for the bearish divergence to form on H4. I got out at 1.54655 making a total of 232 pips in 3 days. Now take a look at the following screenshots.

Swing Trade

Swing Trade

As you can see in the above screenshot, it seems that D1 timeframe is trying to form strong bearish divergence. We will have to wait and see.  There is USD Advance GDP Q/Q economic news release on 26th April. Since no bearish divergence pattern is appearing on H4 timeframe, it means that price is to go up more before a bearish divergence will form. This is Friday most probably the bearish divergence will form on Monday next week after the weekend. So we are not entering into a trade right now. We will wait for the proper pattern to appear before we make the decision to enter.

As you can see we made 230 pips in 3 days. When we trade on H4 timeframe, most economic news releases already get compounded into price action and the indicators so even if you don’t follow the Economic News Calender, it won’t hurt your trading. But if you do follow the Economic News Release Calender, just notice how the price jumps up or down around the time of the new release depending on what the market was expecting and what the actual figures were.

1 Comment

  • Sammy

    July 21, 2014

    I really like your divergence trading strategy, please, can you send me the three indicators withe the divergence. My e-mail is : tiamiyusamuel@yahoo.co.uk . Thanks.