MAKE A PILE OF PIPS RIGHT NOW in Usd/Sgd – Risk 20, Make 1000! Recent market action has provided an excellent entry point for this trade, one that offers much lower risk (as little as 20 pips) than is ordinarily the case with a long term, higher time frame trade. So I just wanted to bring this to your attention as a trade to consider, and to provide you with an updated, more technically focused, analysis of the trade. (And I also just want to show that Nathan and Chris aren’t the only people around here who can analyze a trade – I’m not as stupid as I look, you know!)
I examined this trade, primarily from a fundamental perspective, as one of my long-term favorites revealed in my recent “Three Currencies” article. (All three of those trades are at good entry levels at the moment, each having done some retracement in the opposite direction of their current overall, long term trend. If you’re looking to get into any of them, this may be the best opportunity for a favorable, low risk entry point.)
I want to take a look at this trade across several time frames, in relation to some key moving averages, and also from Fibonacci and pivot level points of view.
Price action on Friday continued right around the 50 EMA on the hourly chart; between the 100 and 200 SMA’s on the 4-hour chart; and just below the 50 EMA, 62 EMA, and 200 SMA on the daily chart. The daily chart, shown below, examined from both the angle/slope direction, and from price’s position in relation to major moving averages, is showing an overall downtrend since price topped out around the 1.2800 level and then broke below the 200 SMA around 1.2650 (you pretty much had a double top – initial high at 1.2830 – far left of the chart, and then a retracement, second high at 1.2793). The weekly chart (not shown) has been in a long term downtrend from the 1.5000 level.
The 4-hour chart (below) is currently showing a retracement back up from the 1.2450 level, following a dramatic drop from the 1.2650 level. Price has gotten back above the 100 SMA, but not above the 200 SMA, and now looks to be rolling back over to the downside (it’s right on the edge of technically violating the most recent uptrend line).
Finally, let’s examine action on the hourly chart to get a clear picture of where we are, and what the likely near term scenarios are, or how this trade might play out for us.
You can clearly see that on both Thursday and Friday last week, price failed at the 1.2585-90 level (doji candle signals the top on Thursday; Friday there’s a candle that’s almost a hammer down – long topside wick at any rate, followed by a large down candle). So far, price hasn’t even managed to touch the 1.2600 level – topping out Friday at 1.2595 and closing right around the 50 and 62 EMA’s, at 1.2569.
Market action has provided pretty much the exact short re-entry point that I was looking for (I had originally shorted this pair at 1.2620, but closed out at 1.2540). In my original article, I said I was looking for a chance to re-enter the short side somewhere between 1.2580 and 1.2600. I sold it at 1.2585 on Friday, but closed out at 1.2565, not wanting to ride it over the weekend when it didn’t get below the 1.2550 level. I will look to re-enter short, selling at just about any price level above Friday’s close at 1.2569, which is right up against the 50 EMA on the hourly chart. Initial stop will be just above Friday’s high, the current retracement high of 1.2595. Should I be stopped out up there, I’ll look to go short again around 1.2610, with a stop above 1.2625. (Referring to my original analysis on this trade, I said that I don’t expect to see Usd/Sgd much higher than 1.2620 – you can easily see, looking back through the 4-hour or hourly charts, that 1.2620 is where the market pretty much fell off a cliff on April 7th).
Supporting this trade plan are the 50, 62, and 200 MA’s on the daily chart, all converged together near the current price level (and the 100 SMA at the 1.2600 level); the 200 SMA on the 4-hour chart right around 1.2600; and all the major moving averages at lower levels on the hourly chart, and with price having moved back to the downside of the 50 EMA, along with the recent hourly candle formations referred to above, that indicate a possible topping out of the upside retracement.
Now let’s look at two other angles on this – the Fibonacci and Daily Pivot views. Bringing the daily chart back up, with Fibonacci and pivot levels on it now (Fib levels drawn from the recent high at 1.2800 to the recent low at 1.2450), let’s see what it shows us.
Daily Chart with Fibonacci and Pivot Levels
To cut right to it, you’ve got both the 61% Fibonacci retrace level and the daily pivot coming in right around the current price level (and note that this is also where a pile of moving averages are converged together on the hourly and the daily charts). All of that together is pretty strong confirmation that this is, indeed, a prime entry point if the market is going lower from here.
To quickly sum up, you’ve got price action, candle formations, Fibonacci and pivot levels, and moving averages across multiple time frames, all providing guidance here for a good, low-risk short trade entry with a lot of profit potential. To confirm the correctness of our analysis here, I’d want to pretty quickly see price break back below the 1.2540-1.2550 level, the 200 SMA line on the hourly chart.
All right, assuming for the moment that my analysis is correct, what’s the profit potential on the short side? Well, there are several points to consider, so let’s just check them off in order here:
- The first and most obvious would be at least a re-test of the recent low at 1.2450 (just this initial down move would provide a profit of 100+ pips on a sell from around 1.2570-1.2580)
- Below that, look to earlier lows made around 1.2150 to 1.2350
- The next obvious level down would be 1.2000 (this price level has, in fact, been targeted by a number of market analysts)
- My long term forecast from the fundamental side suggested that we might see this pair trading as low as 1.1500 to 1.1000 within the next year or two
What’s the best strategy for trying to stay in this trade for the long haul, and for making the best possible profit on it? Well, one could of course just manage it day to day, primarily working off of the hourly chart, watching the 10 and 50 EMA levels and crossovers. A less work-intensive strategy though, and one that might do better at keeping you in for a long ride down, would be guiding the trade with the 50 or 62 EMA on the 4-hour chart, keeping one’s stop just a bit above those levels, enough to allow for brief counter-trend spikes to the upside of those moving averages, but no significant, sustained movement above those levels. That strategy would certainly have worked like a charm on the move down from 1.2800 to 1.2450.
In conclusion, what I really like about this trade is not just all the various indicators that the market may have topped out here, but the fact that you have the opportunity to get in on the short side with a very limited risk, against the potential for some very large profits.
I’d love to hear someone else’s take on this trade, or just your general opinion on this currency pair. So please comment, share this around, and connect with me on Twitter to get my ongoing market commentary.
Wishing you every success, in every aspect of your life,
Winner’s Edge Trading, as seen on: