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AUDUSD has a very good setup with multiple elements in place

AUDUSD has many elements of a perfect trade signal lined up. I covered this sort of setup here in this article ‘5 price features that set up a good reversal trade‘ ← must read! After you go through this piece, please take a look here also to understand potential implication to stock indices.

 

Five elements of reversal trade setup

  1. Roadmap
  2. Resistance
  3. Chart Pattern
  4. Candlesticks
  5. Confirmation break

AUDUSD does not comply with the article exactly. In place of candlestick pattern I insert trading indicator MACD instead. What is also unusual is resistance is usually found at the top, mine cuts across in the form has a 5-quarter close at 0.7655 revealed in this article ‘Autobox MT4 forex indicator spots hidden AUDUSD level‘.

This level is now officially a pain in the ass for AUDUSD bulls. It is just missing a Gandalf character standing there with his magic staff shouting “Thou shalt not pass!” to be completely amazing.

 

The five elements in AUDUSD right now

To come back to AUDUSD, this is what is visible now.

AUDUSD showing multiple elements converging for a bearish reversal

AUDUSD showing multiple elements converging for a bearish reversal

1. Roadmap

We had a good first quarter with AUDUSD outperforming many other pairs. This is in part because it is one of few pairs with attractive swap to hold on to. It is a very taxing pair for shorts, not being able to come down even with short signals but it was equally taxing for longs because it just wouldn’t go up decisively. Just look at February price action to get what I mean.

2. Resistance

The resistance is not so much at the top which is the usual way we identify resistance levels. This level is a ‘hidden’ resistance because it can only be seen clearly on the 3M chart, a chart which many retail traders would not know exists and probably do not have the discipline to follow.

3. Chart pattern

Nestled in the area is a potential Double Top bearish reversal pattern. Potential because it hasn’t confirmed itself by crossing the neckline yet which by the way is too far for retail traders’ psychology to wait.

4. Indicator signal

I don’t have a candlestick but I do have a very nice bearish divergence in the MACD which printed a lower top in the indicator. This indicator signal is not necessary to identify the sell setup but I just want to keep the lucky 5-combo. This MACD bearish divergence signal would be the easiest element to spot for new traders but for someone looking at price action only, 3 potential entry levels exist (see below).

5. Confirmation break

The whole deal is parked now at a pretty long 3-month trend line.

In my opinion this setup has 3 entries just like my indicator (see above first link). The first signal has already triggered. I am waiting for the second one which is coming very soon and then the third which is based on the neckline. This is not a trade call. This is for learning. Take responsibility for your own action.

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Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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