Here’s another guest blog post, this time from MTI Client Rick Quinn, who provides a new trading opportunity…
Despite the longer-term consolidation in the Aussie Dollar, the guidelines presented in the Ultimate Traders’ Package show that opportunities to earn pips from this market are potentially heading toward the downside.
Consider the Monthly timeframe:
For nearly 2 years, the Aussie, (AUD) has been range-bound on the monthly timeframe, moving within an approximately 1,080 pip consolidation from 0.78909 on the upside to .68252 to the downside. The market has been bouncing convincingly off support and resistance. While the FX Chief™ has taught us that the market has approximately an 80% chance of hitting the .382 Fibonacci retracement. Note that here, a retracement to the .382 would represent a significant breakthrough the monthly resistance. Note also that the monthly timeframe closed below the pivot point in March and is trading below it currently; meanwhile, the Stochastic RSI is in the sell zone. Finally, the monthly chart also shows that the outer uptrend line has been broken and the market is trading above the inner trendline. In this scenario, the market often trades toward the inner trendline.
While the RSI on the Weekly timeframe is in the buy zone, we can see a Bear Pennant formation, suggesting another potential move downward.
From the daily timeframe, other factors point toward a potential move downward. First, the Stochastic RSI is in the sell zone. Second, the daily close is respecting the down-trendline, with price remaining outside the ‘X’ (in red).
On the 2 Hour chart, we see the following several indicators of a potential move down. First, the market hit short-term resistance at .7469, the .618 retracement. Second, as indicated, a Bearish Shooting Star (in bright red) gave way to an Evening Star (in shaded gray). Third, there was an aggressive counter-trendline break at the market open. Fourth, the Stochastic RSI is firmly in the sell zone.
More conservative traders may wait for a trendline break near .7420 before entering a sell trade. However, I believe an entry at .7440 with a stop 10-15 pips above the short-term resistance (.7469), with an anticipated move down toward short-term support at .7328 could yield a good trading opportunity. I will enter the market sell order (.7440), with a stop at 15 pips above short-term resistance (.7485) and a limit at 15 pips above short-term support (.7343).
This set-up yields 103 pips while risking 45 pips for a Risk: Reward Ratio of 2.28. With a daily trading range of approximately 60 pips over the last four weeks, anticipating an average 40% daily retracement, I anticipate a trade duration of about 3 days.