Last week, we set up an analyst pick trading around Sterling. The GBP/USD leg of the trade was immediately stopped out with a 100-pip loss. The EUR/GBP leg of the trade is well in the money by nearly 120 pips (and EUR/GBP pips are worth more than GBP/USD pips). Today, we want to tighten the risk level on the open EUR/GBP leg.

Short EUR/GBP

Shortly after writing the analyst pick, EUR/GBP finished its triangle pattern and began to correct lower. This would place the market in the (c) wave of an a-b-c bearish zigzag. The (c) wave should subdivide into five waves. It appears the first wave is complete and a second wave is currently underway. Bears will get another opportunity to short with a positive risk to reward ratio on the second wave partial retracement higher.

Why is a positive risk to reward ratio of 1 to 5 important, read about it in our Traits of Successful Traders research.

Tightening Risk for EUR/GBP to Elliott Wave Key Level

If this Elliott Wave labeling is correct, then EUR/GBP should remain below the beginning of the (c) leg’s high at .8982. Therefore, we will tighten the stop loss to the beginning of wave (i) at .8982. If EUR/GBP is successful in moving to new lows below .8755, then we will move the stop loss further down. Our first target remains at .8620 and a secondary target remains at .8406.

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Tightening Risk for EUR/GBP to Elliott Wave Key Level

---Written by Jeremy Wagner, CEWA-M

Jeremy is a Certified Elliott Wave analyst with a Master’s designation. Read more of Jeremy’s Elliott Wave reports via his bio page.

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