Technical analysis in practice

On Monday, FXL trader @Fred asked about the AUDNZD. The pair is not normally on my main radar. I try to focus on those pairs which attract the most attention and trading. No offense to keen AUDNZD traders. Anyway, if someone asks, I will take a look. In this case, I liked what I saw.

It is my strong belief that smart traders lean against key risk defining levels. The AUDNZD was testing a key chart support level.

My post title said it all: “AUDNZD at key chart support level. Will it hold the line? In the post, I gave and showed the reasons for the trade.

So what happened?

The key support level at 1.0911-15 held like a charm. The low came in at 1.0916, and a move higher started. The pair is currently trading at the 1.0996 level.

It is pleasing to see that UBS today, is now coming out with their own comment that they see the AUDNZD moving up 5 cents on a close above the 1.0979 level today (to read the post, click SEE POST HERE). Cool!

Technical Analysis: The AUDNZD held the 100 day MA and old resistance ceiling at the area.

Technical Analysis: The AUDNZD held the 100 day MA and old resistance ceiling at the area.

FOREX TRADING TIP: Step your way to longer term targets

Now it is not my thing, to target 500 pips as the next target. I have seem more 500 – and above – targets never get reached, or get reached months down the road. However, let’s take a big picture look at the idea and see what it means from a technical perspective.

First, the reason I liked the AUDNZD was that the price was banging against the 100 day MA. It was also testing lows from August and the highs going back to November/December of 2013. Those were my reasons to get in (see post), and I can assume that UBS saw the same things. Whereas, I was picking the bottom, they may have used some other setup confirmation (they may also be looking at something not even related but the coincidence of the 100 day MA holding is too close to ignore)

Now what about the 5 cent target. If they want to see a move above the 1.0979 level today to initiate a buy, then a 5 cent move higher would take the price to 1.1479.

Looking at the daily chart above, the 38.2% retracement of the move down from the high reached in July 2012 to the low reached in January 2014, comes in at 1.04784. HMMMM. That is 4.994 cents away from UBS’s entry level. Another coincidence? I think not.

In a big picture world, getting up to the 38.2% retracement of a long trend move down in a currency pair that may have been oversold, is certainly not out of the question.

That 500 pip move back higher, may take 2 months. It might take 6 months. It might not ever get there. UBS puts a stop at 1.0860. I would put my longer term “line in the sand” stop on a move below the 100 day MA at 1.0920 level, as it would look more like a head and shoulder break at that point anyway.

For me on the topside, instead of saying 1.14784 or bust, I would target levels to get above and follow the steps higher, managing the trade in the process. I want to see the buyers remain in control and although it could go 500 pips without a major correction, remember, this is going against the trend. So there could be some major bumps in the road (or a failure).

Having said that, I could say – and keep in the back of my mind – that the AUDNZD could target 1.14784. After all it would simply represent a 38.2% retracement of the last trend move lower.

In the short term, buyers remain in control. Next target, is to get and stay above the 200 hour MA (green line in the chart below) at the 1.10179 level. The price has not traded above that level since September 11th. Above that and 1.10599 (38.2% of the last leg down) will be eyed., and then the 1.11043 (50% retracement). This should be a tough level to get above on the first test (see chart below).

Technical Analysis: AUDNZD moves above the 100 hour MA. A break of the 200 hour MA is the next step

Technical Analysis: AUDNZD moves above the 100 hour MA. A break of the 200 hour MA is the next step

I liked the trade on Monday, with defined and limited risk. I like the trade more today with the price now moving above the 100 hour MA. I will like it even more if the price gets above the aforementioned targets and really starts to get the attention of the buyers in “the market”. As for 1.14784 target, I will have it in the back of my mind, but there are some other work to do before that becomes a true focus.

Thank you for the inspiration for this post!