A textbook tramline pattern forms in the pound

John C Burford looks at a classic tramline pattern in a pound v dollar trade.

I am tracking the progress of GBP/USD (what the trade refers to as 'cable' for historical reasons), and have just seen in the last minute a cracking example of tramline formation on the 30-minute chart:

11-12-13-MWT-01

(Click on the chart for a larger version)

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The lows (marked by the yellow arrows) enable me to draw my first tramline.

If you have studied my video tutorials on tramline trading, you will know that my next task is to search for a parallel line from previous trading and this is what I find:

11-12-13-MWT-02

(Click on the chart for a larger version)

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My upper tramline takes in the multiple highs and lows marked by the green arrows almost to the tick! There are no throw-overs at all.

That is uncanny, is it not? I just had to send this out to you as a real-time example. Now I can set sell-stops to enter short trades.

Where shall I set my entry orders?

Of course, on a break of my lower tramline in the 1.5580 area.

Where shall I set my protective stop?

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Just above the most recent high in the 1.5640 area.

If the market reverses upwards, it would nullify my analysis. My maximum loss would be 60 pips, well within my 3% rule.

As for my first downside target, it is in the 1.55 area, which I obtained from drawing my third tramline equidistant below my initial tramline.

11-12-13-MWT-03

The third tramline shown contains my first target (in the blue box).And I have drawn my fourth tramline above, and just admire the lovely touch-points.This confirms the validity of my tramline set-up (so far!).

Let's see how this works out!

If you're a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

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