Update On Existing AUD NZD Swing Long

Update On Existing AUD NZD Swing Long

On 22nd August I entered a Swing long position on AUD:NZD from 1.2650 with an ultimate yet possibly optimistic exit target of 1.3230

As this position was taken prior to the inception of this blog, it wasn’t one I had any real reason to discuss here as the trade was already flowing, but price has now reached an inflection point worthy of discussion.

Firstly, although wide stops were a pre-requisite on this trade (not just because my broker has a minimum 70 point stop loss placement), my entry turned out to be pretty poor as a run of 8 consecutive lower daily closes followed. I’m not sure if the position ever actually broke beyond breakeven for the first 2 weeks. How annoying!

Over the last few days however, we have started to see the results of the original set-up that attracted me.

From a fundamental point of view, I do see a short term period ahead where the New Zealand Dollar is likely to weaken against the Australian Dollar, but generally I’ll try to keep the fundamental viewpoint away from my ultimate analysis, but it’s always an area worth considering.

The first chart below details some of my reasoning for the trade.

We have a huge rising wedge that has been fairly well respected by price over a long period of time. Price broke down, but never retested the wedge – fairly unusual unless sentiment is exceptionally strong.

So, the purpose of this swing long position is actually a counter trend trade from oversold conditions (even a small amount of positive MACD divergence on the daily time frame) in view of establishing a fibonacci retracement from the recent lows, and more hopefully, a proper retest of the original rising wedge.

Something like this:

 

Now onto today’s chart.

Price has formed an attractive inverted head and shoulders which is a bullish pattern, though I’m sceptical when the pattern is as clean as this one.

Right now, price is at resistance, so the question is, will this resistance manage to reject price, or will price eventually break above it?

The answer is unknown, so unless you are already either long or short, the best way to treat this is to remain on the sidelines until further confirmation becomes apparent.

For me, as I’m already long, I’ll be watching with a view to stop out on a breakdown (stop loss is presently at breakeven but under review), or, add to the position if present resistance becomes support. This would be the ideal scenario for traders because there are plenty of well defined targets, resistances and supports North of the current price.

Whatever happens, I’d be suprised if we simply breakout from here and carry on up, there is likely to be some turbulence, so don’t be in a rush to get positioned long until resistance is confirmed as support.

At the same time, there could well be a short entry opportunity around this level, but it’s not a position I find attractive and not one I’d participate in.

1Comment
  • RS2OOO
    Posted at 23:56h, 19 September

    I was stopped out of this swing long trade today for -235 points which is the largest single trade points loss I’ve taken in quite a long time.

    It was a set up that has worked well for me in the past and I’ve no regrets in the way I managed the position.

    I will do some extra work to understand why this trade didn’t work out as planned in comparison to similar trades that played out very well, but for now, I’m not 100% sure.

    If todays low holds (it has bounced from minor support at the lows), then I will watch with a view to re-entering the position, but I’m in no rush.