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Trading GBP after the Yes Brexit Vote

The Brexit vote was (and continues to be, as it is still playing out) one of the biggest events for currency traders going back to the early 2015 when the Swiss bank abandoned their currency floor and sent the franc flying higher by 20% before dramatically reversing again. As the brexit results came in, showing voters preferred to leave the EU, the British pound dropped 11.7% off the June 23 high, falling from 1.5009 to a low of 1.3246 on the September contract.

The initial massive move has been missed, but the strong bounce to near 1.4 early on June 24 indicates there is still lot of volatility in the market, and trading opportunities. Day traders are taking advantage of the short bursts of momentum--a favorable environment for them since quick moves mean quick trades, and volatility allows for a margin of error in that you don't need to be perfect with entries and exits and can potentially still make a profit (for experienced traders; inexperienced traders can get easily hurt in the volatility).

Swing traders are facing a bit tougher challenge on the morning of June 24. The currency saw a huge drop, then a strong bounce. With two big moves already in the books, swing traders are left to figure out whether to go long or short, and where. Here are some ideas.

1.3469 to 1.3440 is likely to be a support area. It was where the price stalled after hitting the low, and then broke higher. It is the second-chance entry point for those you missed the initial bounce. The stop loss would be below 1.3353 or 1.324 if taking a long position in the support region.

The above approach requires a deeper pullback on the bounce than we have seen so far. An alternative approach is to trade consolidation breakouts. These can be viewed on various time frames, as they will develop on the 15-minute, hourly and eventually even the daily charts. The chart shows a consolidation on the 15-minute chart, with the breakout that follows likely to result in another strong move. In this case, a stop loss is placed on the opposite side of the consolidation from the breakout. Targets should be placed at points that provide at least three-times the risk of the trade (make $3+ for every $1 risked). This consolidation will likely be short-lived; it just provides an example of the type of patterns to look for as the volatility continues to unfold over the next few days and weeks.

Based on support and resistance levels, some trades could end up providing very high reward:risk ratios. The downside of this approach is the potential for false breakouts from the consolidations that form. Multiple entries may be required before capturing a big move.

Figure 1. September British Pound Futures, 15-Minute Chart

Also, before trading, check with your broker on any changes to your margin requirements. Since volatility was expected to increase, many futures products have had their margin requirements increased by 200%, and many brokers have suspended favorable day trading margins until the week of June 27.

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