Overbought Conditions For Potential EUR:AUD Short

Overbought Conditions For Potential EUR:AUD Short

It would be fair to say that the last couple of Months have offered really tough conditions for swing trading, particularly because the day to day chop seen on many markets have made the line between overbought and oversold conditions quite difficult to define due to flat-lining indicators.

There are some markets that have trended well but none of them seemed to be near levels of solid support or resistance where low risk trades can be taken thus leaving Moving Averages and Trend Lines the only source of technical analysis. On their own, Moving Averages and Trend lines can be unreliable which is why I always like to see a level of horizontal support or resistance nearby to define safe stop loss levels.

I’ve spent a few hours going over charts tonight and there isn’t anything that comes close to showing a perfect swing trade set-up for a super strong move, but there are a few that could offer some nice short term trades. EUR:NZD and EUR:AUD are 2 of them and because both are very similar set-ups I’m just going to look at one of them here, EUR:AUD.

Having achieved my original measured move downside target from the EUR:AUD Box Trade set-up detailed a few Months back, price has since rebounded in a fairly unusual U shape and has reached a level now where regardless of whether the main trend is now up or down, a pull back is highly likely and this should offer a minimum trade-able 100 pips if we can correctly time an entry.

This Daily chart shows price up against an old resistance level which coincides with the 200 MA. After such a fierce bear market it’s highly unlikely that price can sweep past this moving average without some form of pull back, particularly as this level also coincides with a Fibonacci retrace. The upside risk here is almost certainly the 61.8% retracement, though at this moment in time it’s difficult to know whether price can achieve it or not:

The 4 hourly chart displays further evidence of dying momentum in this current move. MACD has started to diverge negatively whilst an unfilled gap remains 200 points below the current print.

Furthermore, it is incredibly rare that a long term low can be printed without price dropping back to retest the 4 hourly 200 MA (green), which currently stands a whopping 400 points below the current level. It is the retest of the 200 MA that so often creates the bullish cup and handle pattern so often seen shortly after a reversal from a long term low.

Whether the current rally is a retrace in an ongoing bear market or whether a long term low is in place doesn’t matter in the slightest for this potential trade. What matters is that sooner or later price will very likely attempt a continuation of the macro down trend and this is what I want to capitalise on.

The tough part of a trade like this is knowing when to enter. The only way to manage that is on shorter time frames so I’ll be watching this chart intraday over the next Week or so just waiting for the right opportunity.

4 Daily closes above the 200 MA would invalidate the trade idea, but in an ideal situation it would be great to see an intraday rally that touches the 61.8% fib level and gets sold off rapidly to close the day either red, or below the 200 MA.

Whatever happens, I’ll be keeping my eye on this one and if I take an entry I’ll post the details in the comments section beneath this post, meanwhile, I’ll be cross referencing it with EUR:NZD in an attempt to enter the trade that looks to have the most legs.

6 Comments
  • RS2OOO
    Posted at 00:05h, 12 September

    Entered a short position at 1.2321

    The Daily candle found resistance at the 200 MA and has closed marginally red.

    Stops are currently set at 1.2371 (50 pts away) which doesn’t allow a lot of breathing space but fits with the likely short term nature of this trade.

  • RS2OOO
    Posted at 23:52h, 12 September

    After some consideration surrounding local resistances and supports, I’ve opted to raise the stop loss slightly to allow a proper test of 1.2393 resistance area on the Daily time frame. Stop loss set at 1.2450 to allow for intraday movements, but would consider manually stopping out at lower levels on a daily close beyond 1.2393

  • Roobarbncustard
    Posted at 08:53h, 16 September

    Looks like this will still be a good trade but from higher up, RS. You couldn’t foresee world events meddling with your chart! Would you raise your stop or is that bad trading?

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  • RS2OOO
    Posted at 22:07h, 26 September

    Hi roobarb,

    Sorry, I completely missed your comment.

    Stops higher up would have probably kept me in what could still have been a good trade.

    Unfortunately, the higher stops made the risk/reward less favourable so I made the decision to trade on the basis of imminent downside to come with tight-ish stops.

    In the Weeks leading to the trade I’d been whipsawed about on a couple of other trades, so I think that prevented me going all out and holding the short with wider stops. That said, if I had have held on, I’d only be in 6 pips profit as I type now, so maybe the trade just wasn’t a quality trade after all.

    Be interesting to see where it goes next…. I have the daily at support right now, i.e what I had as resistance when I entered the trade. If it bounces from here, then I guess I was right to stop out. If it doesn’t bounce from here, then what I thought was resistance/support, probably wasn’t resistance/support at all!