NZD Pairs Line up for Potential Correction
Cory Mitchell, CMT
I have been trying to nail down the short in NZDJPY for some time. GBPNZD, NZDCHF, and NZDSGD all show a similar pattern. The NZD is bumping up against resistance and could decline.
While the price has been chopping around near resistance, a few of these pairs are starting to show weakness. NZDJPY has dropped off price structure resistance, as has NZDCHF.
NZDJPY has fallen off the most at the moment it is looking like the weakest. NZDCHF is also a good looking short and offering a similar reward:risk.
Yesterday I switched my short from NZDJPY to NZDSGD as the former pair looked a bit weaker temporarily. Things change fast as the JPY declined against the SDG, so NZDJPY has taken a harder tumble against JPY than the SGD.
I have been stopped in these pairs 4 times. Sometimes that is the harsh reality. That is why I want to be reward highly when I am right. An 8:1 reward to risk would erase all the losses and still provide a nice profit even though 5 trades were taken and only one worked out (but we don't know that yet).
The price action signal to get short again (NZDJPY) occurred during the night—so I didn't catch it—and provided about a 9:1 reward:risk with a downside target at 64.
But I am not in that, and need to wait for another entry. It may be next week before that opportunity comes. I am looking at entering on a pullback around the 65.80 region. But only if the price stalls there and starts dropping again. This would again setup up a trade with roughly 9:1 reward to risk. That is one possible setup.
The following 15-minute chart shows the missed trade (occurred at night) and the potential one that could set up today or next week.
Trading a breakout lower from the current consolidation may seem alluring, and it may work out if the price keeps dropping, but the reward:risk is less attractive, and there is a chance of a deeper pullback especially when spreads are wide in late Friday and early Sunday trading.
GBPJPY was discussed the other day and is underway. After a pullback we started to see the price rollover to the downside presenting a nice reward:risk of about 10:1 with a target near 130 (a conservative target well above prior lows and the channel bottom).
The above chart shows the overall downward structure. The entry was based on a 5-minute chart.
GBPUSD had a similar trade, but I got into that one the day prior. Reward:risk is 6:1.
EURUSD is also open. Reward:risk is 12:1.
By Cory Mitchell, CMT @corymitc
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.
Assume I have positions, all the time, in many pairs.
Trades are based on strategies and are not meant to be predictions. The number of trades won varies between 30% and 60% based on the strategy. My objective is to make money based on solid reward:risk ratios, not try to predict every move of the market.