Paper trade: NZD/USD shorted 1/6 size @ 0.73967, stopped out 0.7406 (-9.3 pips)
Took another swing with NZD/USD short last night. The RSI for NZD/USD finally eased off and headed down (Fig. 1). This is happening just below the resistance at 0.75 so the probability of a retracement is good. Because of the recent strength in NZD/USD and my failure to short it, I’m only using a 1/6 position size to minimize the risk.
I’ve also set a trailing stop at the recent top to keep it from running away. However, this turned out to be my mistake. The trailing stop was 54.8 pips. It turned out to be too tight and I was stopped out at by a wild swing just before a big dive (Fig. 2). Otherwise, it would have been a decent trade.
NZD/USD
NZD/USD, 3-hour
Paper trade: Covered NZD/USD @ 0.74302 (-60 pips) and AUD/USD @ 0.90917 (-88 pips)
Got stopped out of both my NZD/USD and AUD/USD shorts around lunch time. The big mistake in both of these trades is that I shorted them while they’re making new highs. As written on my 3 rules, never catch the top/bottom. At the time of entry, I was looking too far back into the charts for the resistance levels. In NZD/USD’s case, it was January 2008 (Fig. 1) and for AUD/USD, I was looking at April 2008 (Fig. 3). It’s not that they aren’t important levels, but recent momentum (Fig. 2 and 4) takes precedence over some price level over a year old.
A lesson to remember is that recent memory is always fresher than older ones. If I’m to extrapolate from older price levels, assume a lower probability and manage the risk accordingly.
NZD/USD
NZD/USD, 3-hour
AUD/USD
AUD/USD, 3-hour
Paper trade: Short NZD/USD 100% @ 0.73701, stop 0.7480
In addition to my USD/CHF long, I also placed this NZD/USD short order last night. Having failed to short this earlier on a resistance test of 0.7300 using the 4 hour time frame, I’m testing out my daily method now for shorting at resistance at 0.7380.
0.7380 is an important resistance for NZD/USD because it marks the breaking point back in July 2008 when NZD/USD started a 6-month long downtrend. Although 0.7500 is definitely a much stronger and more obvious resistance level, it is a bit too obvious to wait to shorting it then. I would not short at 0.75 just because it’s too obvious to be run down.
Furthermore, NZD/USD has been chugging upward relentlessly. It is deep in overbought territory as shown by the RSI of Figure 1. Thus, I’m feeling confident enough in this trade to enter with a full 100% position.
Entry: 0.73701
Stop: 0.7500, 0.7480
Target: 0.7000
Reward / Risk = 370.1 / 129.9 = 2.8 < 3. So I’m moving my stop closer, right at the resistance from the starting point of the long term drop which started in July 2008.
Reward / Risk = 370.1 / 109.9 = 3.4
NZD/USD took a quick dive of about 70 pips within hours of my entry. So I moved 1/2 of my stop to break-even (net +$1.81). That tight stop was taken this evening at the open of the Pacific market, see Figure 2. I’m left with only a 1/2 position now. Once again, I’m a bit too hasten to move up my stop. Time will tell if that was a good decision.
NZD/USD
NZD/USD, 3-hour
Paper trade: NZD/USD short stop entry 0.7262, exit trailing stop 0.7300
My NZD/USD short at 0.72509 just before noon today got stopped out an hour later at 0.72661. At least it was only a 1/2 position. I wanted to short again when NZD/USD broke 0.7280 because of the resistance as shown in Figure 1. However, remembering #1 in my newly updated 3 trading rules, I re-considered and held back. NZD/USD is testing 0.7300 at this moment, so this rule is proving itself useful already.
What’s interesting now is that as NZD/USD is testing 0.7300, both USD/CAD and USD/CHF are well off the support levels of 1.0700 and 1.0300, respectively. There’s no particular reason for using these two pairs, they are just two pairs that I’ve been following. Which seems to me that the weakness is USD isn’t as bad as it would seem. If it is, then US dollar would be under pressure in all fronts. And it’s not now. At least not yet.
Thus, not giving up on this nice setup as shown in Figure 1, I’ve placed a short stop entry for 50% position just below the next intraday support at 0.7262. Just to catch it on its way down from this very obvious resistance level.
In any case, here’re my 5 reasons for shorting based on Figure 1.
- Trend is neutral
- We’re at the top of a trading range
- Near resistance at long term Fib level and round number at 0.7300
- Potential double top, although this is very uncertain
- Little breathing room in recent climb up
In summary, here is my order:
Size: Half position, 3000 units
Side: Short
Stop entry: 0.7262
Stop exit: 0.7300, set to trail
Target: 0.7132, top of that uptrending line in Figure 1
Reward / Risk = 130 / 38 = 3.42 > 3
I’m pondering should I enter 50% position when NZD/USD is hanging around 07290. But I think I’ll hold it off since my USD/CHF is still open.
Update: My short entry was triggered for 0.72509 (horrible spread). I was stopped out at 0.72661 an hour later for a net loss of $4.57. This was not a good trade because NZD/USD was so close to a round number resistance that it was probable to test it.
NZD/USD
NZD/USD, 30-min
Paper trade: NZD/USD entry stop 0.7040
I’ve placed an entry stop for NZD/USD at 0.7040. It is at the 23% Fibonacci level and a support of the current uptrend, see Figure 1. This would correspond with my view of strengthening US Dollar and USD/CHF pushing to 1.045.
Entry stop: 0.7040
Trailing Stop: 0.6985
Target: 0.7170
Reward / Risk = 130 / 55 = 2.4 < 3 …
The R/R is kinda low. So I’ve changed it to a 1/3 position instead of 2/3. Now, let’s just wait and see if USD can continue going up.
NZD/USD
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