Analys från DailyFX
AUDNZD Unique Opportunity to Double Up Reward While Minimizing Risk
Talking Points:
- Head-and-shoulders formation below key daily resistance
- Confirmed break of neckline points to move down to 10600
- Potential opportunity to double position size while keeping risk minimal – Example provided.
AUDNZD is not a pair I trade with regularity, but the set-up across multiple time-frames is very compelling. Failure to stay above key overhead resistance at 1.0900 brought selling pressure in, undercutting the rising trend support from the March low. The recent rally appears only to be a retracement of the decline off resistance. As a potential right shoulder forms, a channel is being carved out. This smaller time-frame set-up allows for the possibility to take an early entry within a bigger picture formation.
AUD/NZD 4-Hour
Chart created by Paul Robinson using Marketscope 2.0.
Should the pattern be validated with a fully formed right shoulder and break of the neckline, traders can add to the early entry and lower initial stops. This creates a situation of being able to double up on position size while maintaining a risk profile in line with that of a smaller position.
Hypothetical example for executing this trade using 10k lots – AUDNZD breaks the small rising channel and a trader sells 1 lot @ 10830, placing a stop just above the swing high @ 10880. The HS pattern is confirmed by breaking the neckline and the trader then adds 1 more lot through a new swing low @ 10760. At this point, the trader is holding 2 lots with an average price of 10795, and the stop is lowered to 10825, a safe distance above the neckline. The measured move of the head and shoulders pattern points to a decline down to 10600.
Risk/Reward profile looks like this – Net, net the trader risks 30 pips to make 195 pips, or a 1:6.5 R/R ratio. Initial risk for losses was 50 pips on 1 lot, or $45 with profit potential of 230 pips, or $207. But, because the trader added another lot they ended up risking 30 pips on 2 lots, or $54. Pip profit potential was slightly lowered to 195 pips on twice the size, or $351 in actual PnL. So, you see, our trader in this example risked another $9 of losses to make an additional $144 of profit. By identifying multiple entry points as a trade works in your favor, you can increase profit potential while mitigating risk of losses.
Alternatively, the head-and-shoulders could become a triangle just below major resistance, setting up a potentially explosive situation. But, first thing is first, focus on the HS pattern and see if we can’t score some outsized gains….
—Article was written by Paul Robinson of FXSimplified.com
Want to trade with proprietary strategies developed by FXCM? Find out how here.
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.
Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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