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Time for an evaluation of every trade

This is an end of Wk14, beginning of Wk 15 appraisal of the market. I am looking at the AUDUSD, EURUSD, XAUUSD, China A50 and a couple of other trades written about in the past 2 weeks.

 

Forex observations end Wk 14, beginning Wk 15

I did well since I shouted AUDUSD here. It’s got five very good elements that says there is a trade setup and it’s rewarded my patience. Although self-praise is no praise, it’s rewarded my diligence as well – I spend a lot time looking at price patterns to understand what worked and what not in order to identify highly recurring, high probability setups. AUDUSD is one of them.

The other thing that I have done –  sometimes with wrong results but more with the right outcomes is to stick to a bigger picture, rule-based approach. One of the things that led to identifying an AUDUSD short correctly is sticking to a bullish USD view, a view I shared over here.

DXY weekly chart 2015 to present

DXY weekly chart 2015 to 23 March

DXY is now doing it’s up down over again again just like it did between 2015 – 2016. I am going to stick with up/throwback until proven otherwise for my own trading.

Coming back to AUDUSD, it’s time to make an evaluation all over again. It’s easy to imagine that profit will continue to add up but the fact is prices travel in zigzag so prices could easily retrace very quickly when we least expect.

 

AUDUSD neck line hit, reached support

AUDUSD has hit neck line, hit support. Prices could continue to drop lower but could just as easy rebound from here. This is where shorts who are ‘deep-in-the-money’ should consider taking some.

This was my original chart with the neck line clearly marked.

AUDUSD showing multiple elements converging for a bearish reversal

AUDUSD showing multiple elements converging for a bearish reversal

This is AUDUSD currently.

AUDUSD daily chart 10 April 2017, 2 short signals marked

AUDUSD daily chart 10 April 2017, 2 short signals marked

In my original where I identified AUDUSD as a very good bearish reversal setup, I also identified the possibility for 3 triggers or sell signals. Two of them are now marked here.

  1. First signal – end-of-day price action shows AUDUSD retesting 5-quarter resistance at 0.7655 and failing.
  2. Second signal – end-of-day price cuts the long supporting trend line below from end-Dec/early-Jan. This is also element #5  of ‘5 elements of reversal trade setup’ – the ‘confirmation break’.

 

So what now?

For me it’s time to take profit, step away for an evaluation. Sometimes price will run away. It will continue to fall steeply. I will regret my decision to square the trade and I will have problem find a re-entry level.

But this is support. It is neck line. This means the other time when it is not falling steeply, not running away, it will find support here and it will bounce up steeply. This kind of setup is inevitable because after all, prices travel in zigzag. There will be forex traders waiting for bullish setup to buy AUDUSD. It is one of the few pairs that reward a positive swap to hold a long position.

This rebound may happen even though we think that AUDUSD trend is bearish. It just needs the following to happen:

  1. For market sentiment to turn positive even if it is just awhile.
  2. For some short sellers to take profit.
  3. For some short term speculators to think it is oversold and time for a retracement.
  4. For retracement to become sustainable enough that late shorts have to square to cut loss.

Last week was an excellent week for AUDUSD shorts. The pair has fallen half of the entire range in March. For me, that’s enough.

 

Emphasis: I want to point out take profit, close short doesn’t mean turn long. Down trend is still down trend. Take profit means protect profit from being diminished by retracement if any. Going long requires price show show reversal setup.

 

EURUSD another pair at support

I saw EURUSD down trend.

For the same reason as DXY, I see EURUSD is a pullback in what is still a down trend – until that trend line that is acting as current resistance is completely defeated.

EURUSD weekly chart from August 2014 – 23 March 2017

EURUSD weekly chart from August 2014 – 23 March 2017

I still see it down trend but it has also reached support.

EURUSD daily chart end Sep 2016 - present

EURUSD daily chart end Sep 2016 – present

Other pairs I am looking at that are at or near support include USDJPY and NZDUSD.

 

Gold at resistance and not making bulls or bears easy

XAUUSD is giving not making it easy. If you followed this blog over years, you will know that I am a long term gold bull for various reasons but I also think that short term wise, it is due for a correction. This post ‘Gold mining stocks bearish divergence from XAUUSD‘ is a clue.

I saw $1264 as resistance for XAUUSD and I thought it was due to correct in order to find where the next support is. Unfortunately I was stopped out of a short 2 weeks ago but looking at price action last Friday, I don’t think bulls won either.

XAUUSD daily chart, shows resistance and failed break at $1264

XAUUSD daily chart, shows resistance and failed break at $1264

I will not buy at current price but I am unlikely to short anymore. See whatever happened on Friday (US launched an unprovoked attack on Syria), I think that upward shocks to XAUUSD are more likely to happen than not.

 

Some other trades that I am looking at

  1. Am still looking at China A50 where I am more bearish that bullish. There is a reason for this non-committal view – China A50 prints a big triangle that could be up or down. However I am more bearish and the contract has complied with my observations so far. See the story here. There is a high level of correlation so I am looking at HSI and SiMSCI as well.
  2. Am looking at copper correction. This has a high level of positive correlation with AUDUSD.
  3. EURGBP to fall further in line with week-week down trend based on GBP strengthening.
  4. EURAUD is at headwater of two trends: quarter to quarter is still down trend with EURAUD trading at support-turn-resistance of Q4 low last year but week to week trend is still up.
  5. USDSGD bullish reversal. USDSGD had a bullish expansion last week that terminated previous trend. Today it printed another new week high.
USDSGD prints bullish expansion

USDSGD prints bullish expansion

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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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