NZDCAD Short Opportunity at Top of Long-Term Descending Channel

Cory Mitchell, CMT

The NZDCAD had a nice short trade setup on the daily chart last week. I missed it, but am looking to get in on a pullback to the upside. 

The NZDCAD has already started to slide lower off the top of a descending regression channel. We had a triple top pattern in July followed by a breakout to the downside. Just below 0.89 was the original entry point to get short. 

That is where I will be looking to get in. A stop loss goes above 0.9015 (can likely be placed lower, resulting in few pips risked...discussed below).

There are two targets, depending on how long you wish to hold the trade. For a shorter-term trade, lasting likely about two months, the target is 0.85. This is the middle of the descending channel. There can often be some choppiness mid-channel. 

The longer-term downside target is 0.81, which is the bottom of the channel. That could take about 6 months. 

NZDCAD selling off near top of descending channel August 11 2020

The reward:risk varies from close to 3:1 up to almost 6:1. That can increase dramatically by watching the pullback (to the upside) and using the hourly or even 4-hour chart for entry and stop loss placement once the price starts rolling back over. Watch the price action video at the end of the article for information on that.

If the price moves back up toward that 0.89 region, I will be watching for the signals that the upward move is running out of steam. A smaller stop loss and fine-tuned entry could push the reward:risk up to well over 10:1 even with the shorter-term target.

You could also trade this potential downtrend on a smaller timeframe, like the 4-hour or hourly, taking multiple trades as the waves unfold. A big price structure like this can be traded as one or two trades or many. 

Here is the price action video.

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.

Comments

Forex Trade Ideas

FEATURED
COMMUNITY