Friday, March 20, 2009

Nzd-Yen pair break out of triangle. Wait for significant retracement.

Nzd-Yen 240 minutes chart (4 hrs = 6 bars everyday) (Nzd = New zealand dollar)



The triangle is marked on the chart, very obvious, nothing to explain here.


Same chart on daily timeframe -



As you can see price action has also been able to clear the major falling trendline since the decline
began sometime in middle of last year.


I have also posted the same chart Nzd-yen daily, with a different trend line marked on it to explain
a concept of trendlines. First have a look at the chart & locate the different trendline.




Able to locate the difference ?

Now the question is which trendline is relevant? We have two trendlines, created by starting with
two different swing highs & extending both through a common major swing high.

I would tend to use the first one, but question is why?

The first trendline again, with a critical area marked -



Now notice how with this trendline, how price faced resistance so many times. First it bounced lower
from it before taking support from the rising trendline from below & again trying to cross it, with multiple
candles with long wicks (that's the long thin part above/below the main body) above the trendline but
ultimately closing below the trendline. That means price tried to get above the trend line many times but
faced resistance, forcing it to close below the trendline. This wasnt the case with the second trendline
at all. Price just touched it & continued to move higher - thus my conclusion would be that the first
trendline is a more relevant & important one. Maybe the first swing high was a key level from elliot
wave analysis. But I dont understand too much of elliot wave so wont attempt at an explanation.

This is a point to note, whatever timeframe chart one is trading on, the good trader looks for a close
in that timeframe above/below a key level. So if your trading on the hourly charts, look for a close at
the end of a particular hour and then take a position. What this will mean is a little late entry, but
higher accuracy in the trades.


One should now patiently wait for price action to come back to where it broke out from & take long
positions there. That would mean much better risk reward ratio for the trade. I have marked out the
Fibonacci levels on the charts, of the big move from the lows around 44 levels to current price. Obviously
if the price moves up further, will have to adjust it accordingly. The ideal place to take the trade
would be around the .382 retracement, which also coincides with the former resistance line of the
triangle.



So wait patiently for price to decline to those levels before taking a fresh position. Put in a limit
order for going long around levels of 50.