Analys från DailyFX
Trading a Rare Diamond Pattern in NZD/CHF
Talking Points:
- Unusual Diamond Pattern in NZD/CHF
- Range-Bound Price Action on Smaller Time Frames
- 2 Important Points About Risk Profile
Both the New Zealand dollar (NZD) and Swiss franc (CHF) are more traditionally associated with gold than with diamonds, but there is an extremely unusual diamond pattern occurring on the below weekly chart of NZDCHF right now.
Guest Commentary: Diamond Pattern on NZD/CHF Weekly Chart
Exotic as it may sound, the diamond pattern is essentially a special type of consolidation. The expected movement is down, especially in this case considering the previous downside momentum. However, given that NZDCHF shows no danger of breaking down on the weekly chart (and could unexpectedly shoot up), the focus should be on the lower time frames and any opportunities presented therein.
The daily chart below provides an interesting perspective in that a rising trend line is supporting price as it challenges the weekly diamond pattern. Currently, price has pulled back to support and neither bulls nor bears are showing a stronger hand.
Guest Commentary: Range-Bound Daily Price Action in NZD/CHF
The best solution, then, is to assume that some form of range pattern will prevail. There has already been previous horizontal support, and when considered in conjunction with the rising trend line, it allows for a long trade that has at least 80-100 pips to move. That may not seem like much, but if risk can be controlled tightly enough, then it will be enough to justify taking the trade.
The four-hour chart below shows a slightly different situation. Here, the trend line has already been overshot, and thus, the trade should be focused on the expected retest of that trend line.
Guest Commentary: Trend-Line Retest on 4-Hour Chart of NZD/CHF
Horizontal support levels are readily available using previous price action, and a confluence of at least three of these levels provides a nicely defined support zone of 0.7459-0.7487.
Price is just beginning to touch the support zone, but there’s still time before this set-up triggers on the hourly chart (not shown). The triggers in play would be bullish reversal divergence, pin bars, and/or bullish engulfing candlestick patterns.
The upside to the trend-line retest zone is only about 25 pips, and while this might seem too small given a support zone that is 28 pips deep, traders are reminded of two factors:
- Once the trigger occurs, stop losses may be placed below the low of the pattern involved, which may be much less than 28 pips; and…
- This trade, and indeed all trades, are mainly aimed at getting the trader into a high-probability interaction with the market so that a position can be protected quickly. If this move develops and the trend-line breakout turns out to be false, price could run the 80-100 pips discussed at the beginning of the article, and potentially even more if it breaks the diamond pattern.
Ultimately, no one has the proverbial crystal ball, and thus the job of the trader is to keep taking the next trade and be well-positioned if/when that sizable move develops.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com
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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