Weekly Short Trade Setup in AUDNZD
Cory Mitchell, CMT
Weekly charts provide a way to capitalize on longer-term movements. Trading off a weekly chart also doesn't require the constant monitoring that may be required on lower time frame trades.
The AUDNZD recently rallied to a descending trendline. It had a false breakout to the upside the week of June 1. The false breakout candle was also a bearish engulfing pattern. A signal to get short this pair near resistance.
It has since fallen to the downside. The week of June 29 saw another bearish engulfing pattern following a brief and weak push to the upside. This is another signal to get short.
AUDNZD Entry Point
Using the weekly charts, we can look to enter anywhere around the weekly confirmation/engulfing candle. In this case, the signal to enter short was the bearish engulfing pattern, which closed near 1.0622.
Consider a short entry near 1.0622. As I write, the current price is 1.0632. Since the entry signal has already occurred, entering there is fine. Anywhere near 1.0622 or above is fine.
AUDNZD Stop Loss
A stop loss goes 26 pips (about half the daily average range, which is currently 51 pips) above the most recent swing high, which is 1.0757. So the stop loss is 1.0783.
The risk on the trade is 161 pips. These are weekly charts, so the risk in pips will be larger than trading a daily or hourly chart, but the potential profit in pips will also be bigger. Because of the bigger stop loss on the weekly chart, the position size will also be smaller relative to the lower time frames.
AUDNZD Trailing Stop Loss Exit
For weekly charts, I like to use the one-bar trailing stop loss technique, with a twist.
The price needs to move the distance of the stop loss in our favor before the trailing stop loss is put into effect.
With an entry near 1.0622, the price will need to drop 161 pips, to 1.0461 or lower, before the trailing stop loss kicks. in.
Once we have a week where the price has dropped below that price, then we start trailing stop loss down above the high of each candle (only moves down, never up).
Continue to use the 26 pip buffer. For example, if the high of the candle is 1.04, the stop loss would go at 1.0426. A lower weekly high is required to continue dropping the trailing stop loss.
The trailing stop loss is only moved on Sunday. This way, the weekly candle has completed from the prior week, and we can move our stop loss based on that candle.
While a trailing stop loss is being used, over the last several years, the price quite often bounced off 1.03 (lots of swing lows in that area, historically) but has fallen to 1.01 to 1 a couple times as well.
The AUD and the NZD both have the same interest rate. That means most brokers are going to charge some rollover each night whether long or short. It should be very minimal.
For these trades, based on the weekly candles/bars, trades will be held through the weekend.
Trades are not exited for news, unless the price is very close to the stop loss. If the price is close to the stop loss heading into a major news announcement, close the trade as it will likely be stopped out anyway.
Cory Mitchell, CMT
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.