Trading Forex Reversals within a Bigger Downtrend

Although the AUDUSD currency pair is strongly retracing upwards, the downtrend is still heavily bearish on the higher time frames (such as weekly, daily and 4-hour). A retracement could in fact be a great opportunity to join the downtrend at a discount. Let us review this pair! Oh and don’t forget to mention at the bottom whether you are planning to take the setups or not.

  • The momentum (red arrow) on the 4-hour chart was very strong: a 750 pip fall in 1 month;
  • The false bullish break (purple arrow) of the triangle (green) break was followed by a bearish break which pushed through the bigger bottom (blue);
  • With the support level out of the way and price not even close to the -27.2 target at 0.8430, shorts within this downtrend seem appealing – especially if price retraces higher for a discount;
  • For the moment price broke above the resistance trend lines (orange), so what price level(s) could be the turning spot for the downtrend continuation?

12- 11- 2014 au

ENTRY SPOTS FOR AUSSIE SHORT

It’s time to identify strong resistance levels which could stop the retracement and spin price back into the downtrend. Various levels are important in this analysis and they all group together at around the same level of 0.8770 providing confluence.

  1. Last week’s weekly high (purple);
  2. The high of a big bearish daily candle (purple);
  3. The 4-hour top (purple);
  4. The previous 50-61.8 Fibonacci retracement level (blue);
  5. The -61.8 Fibonacci target (orange).

12- 11- 2014 au 2

A conservative target would be the -61.8 (blue) target at 0.8516; whereas a more aggressive trader could try to target the bigger 0.8430 level. A conservative stop loss would be above the previous top at around 0.8860 or even at 0.8920; where a tight stop loss could be +/-30 pips above the -61.8 target at around 0.8805.

KIWI SHORT TOO?

The NZDUSD is also retracing sturdily against the downtrend. The recent break of the bear flag (green lines) saw price fall down to the weekly bottom (purple) BUT without breaking it. And now price is “grabbing its chance” to climb fast. At what points am I looking for shorts?

I would be most interested in trading a short from the -61.8 Fibonacci target at 0.7923. There is extra trend line resistance and a bearish armpit, besides the Fibonacci target. A stop loss would need to be above the top (grey line) at the very minimum. The target could be aimed at targets such as 0.78 or 0.7750, or 0.77.

Until price reaches that resistance spot, price might very well continue with its bullish retracement and extend the consolidation for a while. There could perhaps be a potential for a long up towards the mentioned resistance level but it would not be my cup of tea to trade against the trend in the middle of a retracement.

12- 11- 2014 nu

What is your view on the NZDUSD and AUDUSD? What levels are critical in your analysis?

You have the chance to post down below your screenshots or text explanations!

Thank you for sharing this post, and wish you Happy Hunting!

P.s. let us know if you took the trade setups mentioned in the article and how you did with those trades.

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