There was an interesting development on the GBP/USD pair yesterday because the Supertrend indicator finally turned green on the daily chart, indicating that it’s now in an upward trend. Considering it’s been red since 8th December 2009, this could be a significant change in trend, and suggests that the GBP/USD could be bouncing back after a heavy sell-off in recent months.

From a personal point of view, the reason why this Supertrend indicator is so important is because it tells me which way I should be trading on the 4 hour chart. So I shall now only be taking long positions on the 4 hour chart when my favoured EMAs cross upwards (although I’ve only been taking long positions anyway in recent weeks because I was expecting this upward move).

The best high probability set-ups generally occur just after the Supertrend changes colour. So in this case we would ideally like to see the price fall to around the 1.52 – 1.53 level so that the EMAs cross downwards on the 4 hour chart and are perfectly positioned for an upward EMA crossover in the near future.

In simple terms, we want the EMA (5) to fall below the EMA (20) on the 4 hour chart first of all, then we can go long when the EMA (5) subsequently crosses upwards through the EMA (20).

Finally it’s worth keeping an eye on the EUR/USD pair as well because this one also looks like it’s about to turn bullish. The Supertrend indicator is still red on the daily chart but currently stands at 1.3684 which is very close to the current price. So a close above 1.3684 would signal a change in trend.

Filed under Blog by JamesW

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