Trade Example – NZD/USD

Filed under: Learn Forex Trading |

There have been a number of logical setups on the NZD/USD forex pair recently, and I would like to provide a commentary on some of that price action right now. Now, for those of you that don’t yet know, the NZD/USD is the exchange rate between the New Zealand dollar and the United States dollar. If you look at Figure 1, you will see the daily chart for this pair, and you will see how price has been moving over the past few days.

 

Figure 1.

The 8-day exponential moving average is crossed above the 21-day exponential moving average, showing that the pair has a considerable amount of bullish momentum. However, price has hit a very strong level of resistance, and it is very obvious that price is struggling to close above this level.

 

Now initially, we could have waited for a break above this level and then put an order in to go long once this happened. However, after five pin bars that have failed to close above this level, we could also consider a contrarian trade, going short and trying to take advantage of the resistance level. We could have gone short at a 50% retracement of the third pin bar at that level, with a stop loss placed just a few pips above the high of the pin bar, and a target set of two times our risk. This trade would have been successful for a very nice 2% rise on our bank. However, contrarian trades are tricky and should only be made if you are sure about the setup. But with two pin bars failing at this level already, we could have perhaps taken this one in hindsight. That’s all that I have for you today – and I’ll be back tomorrow with another forex price action trade commentary.

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