How to Trade the GBP/USD Flag Pattern

04/21/2011 6:00 am EST

Focus: FOREX

Clive Lambert

Founder and Main Contributor, FuturesTechs

The GBP/USD currency pair has formed a classic flag pattern, a well-known trade set-up that, if confirmed, would project a sizable move higher for the pair.

The British pound/US dollar currency pair, AKA “cable,” has been in a consolidation pattern since late January, trading in a broadening range between 1.5937 and 1.6429.

chart
Click to Enlarge

Recent price action within this range has formed a pattern known as a flag, consisting of a short-term countertrend channel after a significant directional move.

On the chart below, the countertrend channel is highlighted by the orange arrows, while the “flagpole” is highlighted by the green arrow.

chart
Click to Enlarge

This formation would be confirmed by a close above the downtrend channel at 1.6336, with additional confirmation given by a close above horizontal resistance at 1.6429.

The implication of this formation is a move to 1.6828.

By Clive Lambert of FuturesTechs.co.uk

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