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Four Reasons Why I Am Short AUD/NZD

Forex

Four Reasons Why I Am Short AUD/NZD

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I went short AUD/NZD this morning. I am expecting the resume of the currency pair’s long-term downtrend towards 1.03. Here is why I am now short on the Australian dollar against New Zealand’s and how I will manage this trade.

The Big Picture

AUD/NZD has pulled back to the 60-day moving average (60-MA) on the daily chart. That’s still way below the 300-day moving average (300-MA), 350 pips to be precise. Given the pair is trading below that MA, I am looking to go short.

Furthermore, the last 2 days AUD/NZD’s pullback has trouble breaking out of the 60-MA. My short trade is sort of a bet that 60-MA’s resistance will hold.

audnzd-daily-chart

Reasons to short AUD/NZD at the 4-hour chart

Let’s see four reasons why I opted to short-sell AUD/NZD:

  1. The recent ascent has met considerable resistance at the 300-MA, converging with the daily’s 60-MA.
  2. Candlesticks at this price level printed long wicks, a sign of price rejection.
  3. MACD short-term line has crossed the long-term line and is now facing downwards.
  4. RSI is far away from oversold conditions, more like close to overbought.

audnzd-short

Trade management of AUD/NZD

I went short at 1.0485 in my real-money trading account with InteractiveBrokers. I set a mental stop loss at 1.0510, above the 300-MA. That means I stand to lose 25 pips in this particular trade.

Yet, my stop loss will trigger only if the price closes above that level. That will safeguard my trade from stopping out by a long wick. We all hate to be stopped out, only to see our prediction being confirmed a few hours later. Waiting for the close instead of bid/ask hitting my stop loss is a new method I’ve recently included in my trading strategies. A random spike that quickly gets rejected is no more dangerous for my positions.

Should AUD/NZD price breaks below the 12MA, I use that moving average to convert my stop loss into a trailing stop. By doing so, I’m guaranteed a risk-free trade while riding the trend for as long as it lasts.

Ultimately, I am trading out at around 1.03, hoping for 185 pips profit. More likely though, I’ll exit on a 12-MA breakout or if MACD makes another cross; this time signaling a reversal of the predicted downtrend.

Keep track of this trade at TradingView and feel free to follow me.

Jim entered the financial world by trading sports and now invests in US stock markets and forex, trying to buy low and sell high. Connect with Jim: StockTwits | TradingView