The AUDUSD has been in a constant strong downward movement over the past few weeks, and there's been good money to be made selling this pair.

However, we're at a horizontal level on the weekly timeframe, and are obviously overextended. Price is forming a bullish pin bar on the daily timeframe and has reversal divergence on stochastic indicating a move to the upside is to be expected.

We've got to wait until the end of the trading day for a confirmed signal, but price certainly seems to be stalling. There's massive reward:risk trading this pair long, with at least 400 pip potential gain.

What do you think? Are we setting up for a reversal in the Aussie, or is it going to keep moving to the downside?

Andrew Hewerdine

Learn How to Trade Online

Views: 238

Tags: audusd, divergence, forex, pin, price, reversal

Comment by talisman on May 29, 2013 at 9:38pm

you have a very reasonable , logical long trade idea.  if nothing else you should get a bounce even if the down trend continues.  a bounce on the weekly if traded on a daily can offer some pretty good pips relatively safely.  i do see there was a bullish pin bar on the daily that failed a few days ago when 96 was first touched. 

i remember chris capre often speaking about trading levels like this.  when something was coming in with the strength of this trend he always recommended waiting for a strong pa signal in the new direction, never enter on a level when it hits it.  i imagine from watching you you have a similar way.  what would you like to see to get you in this trade long ? thx, and good luck

Comment by Oasis on May 29, 2013 at 9:51pm

Interesting situation, thanks for posting Andrew. Following on to what Talisman said about a good entry point, I looked at the H4 chart. The previous swing high was at about 0.97 that seems to coincide with my daily R1 level (keeping faith in my pivot indicator). So perhaps an H4 close above that level with some bullish candles before that should give some confidence about a change in trend?

Regards

Comment by Oasis on May 29, 2013 at 9:55pm

However it is interesting that Chris Capre expects further downside: http://2ndskiesforex.com/strategies-for-forex-trading/forex-signals...

Comment by talisman on May 29, 2013 at 10:16pm

chris does definitely mention the significance of this level, and excpects a bounce of 100-200 pips is most likely before continuuing bear trend.  this 100-200 pips is very likely going to be a very tradable counter trend even if a new trend doesnt take off.  the four hour entry you mention oasis is more probably a bounce on bear trend  (imo ) , but certainly a good trade idea none the less 

Comment by Andrew Hewerdine on May 30, 2013 at 1:10pm

I've traded every single major bounce off this level going back as far as 13/3/2011, so I think it's a major level until proven otherwise. Trend trading will always have an advantage over reversals when it comes down to probabilities, and I must admit fundamentally Aussie probably is a sell these days. The thing is that I do not take any fundamentals into account with trading, as everyone was screaming about the euro collapsing, when it was going straight up. If we break this level, hold onto your hat, because it's likely to be a big move to the downside longer term.

What's interesting is that AUDUSD 240 chart has pulled back to the 50ema, which is the strongest pullback since 9/5/2013. We have a marginal higher high, and if we put in a higher low on the 240, we could be looking at a move. I'll be honest, the 400 pip gain that I mentioned is a little more than I'd really expect. I reckon we're looking at 200-350 pips of movement before another leg down.

All comes down to the PA in the end though

Comment by Andrew Hewerdine on June 6, 2013 at 8:41am

Hi Peter,

Just wanted to post the trade completion. I lost 93 pips on the trade which was around 0.65% with 1% risk.

Even though it was a losing trade, I was still happy with the setup, and I'd take it again. It fits my rules, and therefore I trade it.

I don't think forecasting is particularly easy at all. However I'd argue that if you can forcast an hour on the smaller timeframes, you can forecast a week on the higher timeframes. A chart is a chart is a chart, and price action tells the story. Yet on the smaller timeframes, I respect that there are more variables such as news etc which add to the fun.

75% success rate is great on any timeframe. I personally am closer to 65% success rate overall but my winners are significantly bigger than my losers, and that's what helps the account to grow. I used to scalp and day trade a lot several years ago, but in the end I just found that I spent too much time in front of the screen, although it certainly helps to grow the old trading account.

Comment by Andrew Hewerdine on June 6, 2013 at 10:52am

Hi Peter, thanks for the in depth response, its great to see some in depth feedback and very valid points.

You're quite right, as we both know, you never know whether you're going to win or lose on any one trade, which is why we have to take the setup if it fits our rules, and roll with the punches. I agree completely with large numbers being needed with regards to generating performance figures, I myself know that I average just over 2 trades a day on the daily timeframe, and over the past 8 years+ I've built up a large number of trades to understand the swings in success rate that can and do occur. Not to mention the years I spent on smaller timeframes.

Forecasting is still difficult on any timeframe, and as the commercial world is typically based around 50-60% as you stated its far from foolproof. What I predict to happen isn't always what I trade. While there may be X number of potential pips available on a trade, it's all about what the price action tells me bar by bar. Also with the larger reward risk ratios 50-60% success rate can still be very profitable, but you'd never want to bet the house on any one trade!

I'd argue one slight point with markets being fractal. The basic structures are the same, and if you show me a smaller timeframe chart where news doesn't feature and I'd argue it could be any chart, but you're quite right, that as soon as news events come into play the charts do look very different.

I love your analagy of the weather, very true.

You're quite accurate in saying the left side of the chart is past, and we can only make money out of the right side of the chart. Far too many people spend forever looking at the left and backtesting and hoping that the exact patterns will repeat themselves.

Completely agree with your point about a 6:1 is better than a 4:1 on any timeframe. My biggest trouble is fitting trading the smaller timeframes into my lifestyle. I travel too much. I've just spent 6 months out in Thailand on the islands plus other parts of Asia, and haven't been able to rely on a decent internet connection for day trading, I'm back in the UK for a few weeks, then over to California for a few months. I did 16 or 17 countries last year and therefore I have to focus on the daily charts as it's the only thing that really fits into the way I want to live.

Having the time, patience and ability on the smaller timeframes is a great thing, but would you not agree with me that with higher spreads that most new or novice traders have to suffer, it's more difficult for them to be profitable on the lower timeframes as their transaction cost is so high in relation to their stop?

Andrew

Comment by Andrew Hewerdine on June 6, 2013 at 6:23pm

Haha, some brokers still have those spreads and get away with it too.

I know what you mean about the spreads coming down over time, it definately makes it easier on us.

I've got to say I'm impressed with you getting down to 5 pip stops and hitting 75% success rates, that has to have taken a lot to get there.

Same here, good to chat today, have a great evening.

Andrew

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