Bonus NZD/USD Trade

Last updated 8/21/2009 7:41 PM EST (GMT -5) 11 Comments

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Bradley W. Gareiss

Technical Analyst, GFT

Today we posted a previous NZD/USD trade invalidation on the Swing Technicals.  The reason we posted that trade again was to explain why the trade was invalidated, and what we could learn from it.  However, there is another bearish pattern forming on the NZD/USD as well.  We will update this pattern on the main Swing Technicals report next week, so check there for updates.  Moving on, an excellent bearish butterfly is forming on the NZD/USD 2hr Chart below.  The trade would enter at the 61.8% Fibonacc retracmement of XA on the Weekly Chart as well.  If this pattern completes, this would be an excellent set up.

We are looking to sell the NZD/USD if the pair rises to 0.6951 (Point D).  Point D is located at the convergence of the following levels:

We will now jump into possible red flags that could invalidate this trade.  First, we need to watch how quickly CD completes.  If the pair rises with long bars, don't take the trade.  If the pair comes within 20 pips of reaching our entry, does not enter, and reaches T1 before entering, the trade is invalid.  The trade is also invalid if the pair falls below 0.6715 before hitting our entry.

To recap, we will look to sell the NZD/USD at 0.6951 with our stop placed at 0.7018.  Our initial profit targets are 0.6855 (38.2% of CD) and 0.6775 (61.8% of CD).

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  • Weekly Chart - Entry would occur at 61.8% of XA.
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  • 2hr Chart - Bearish butterfly; sell at 0.6951.

Comments (11)

Nadia

August 24, 2009 at 03:50 AM ET

Hi Brad
All these patterns a new to me and I try to understand how you project entry point.
After applying Fib. Ext. on the chart I’ve got (using GFT data and low /high point))

161.8% FE of XA is 0.6947
127.2% FE of BC is 0.6951
AB=CD (D @ 0.6931)
61.8% Fib. Retracement on weekly chart @ 0.6952

My Questions are:
Why you suggesting entry point @ 0.6951 because this price represent 127.2% FE level or some other reason?
Why trade became invalid if the pair comes within 20 pips of reaching target where this number come from?
Is price entry shouldn’t be below 127.2% even point D below this level?

By the way when I apply price Fibonacci extension on ABC , point D all the time represent 100% and you are
Using 127.2% why?

I’m not sure if I can ask you all this questions, but if could have answers would much appreciated.
Thank you for your time.
Regards
Nadia

bgareiss

August 24, 2009 at 02:51 PM ET

You might want to check your Fibonacci levels again, because they are slightly off. Without going through all of them, there is some subjectivity in deciding exactly where the entry will be. Usually I place the entry at the middle point of the 3 primary levels (in this case, 0.6951). In this case, we used 20 pips because that is where the AB=CD level completes. Therefore, if the trade hits that level and moves down to T1, the pattern could have completed. Therefore we may have been wrong with our entry level and must cancel the trade. Could you please rephrase "Is price entry shouldn't be below 127.2% even point D below this level?"? I am unclear what you are asking about. I am also unsure what you mean by "By the way when I apply price Fibonacci extension on ABC, point D all the time represent 100% and you are using 127.2% why?". Could you please rephrase that as well? Thanks. Brad

Nadia

August 24, 2009 at 07:15 PM ET

Thanks, Brad, for answering my questions.
yes, you right Fibonacci Retr. on weekly chart should be @ 0.6945.
What I meant by, Is price entry shouldn’t be below 127.2% even point D below this level?
we shouldn't entry on D completion itself, our entry should be based on D completion + Fibonacci confluence for high probality trade. About 100% price extentions Fibonacci don't worry this is just represent point D.
Thanks again.
Nadia

bgareiss

August 24, 2009 at 08:08 PM ET

We try to put our entries at the level where we feel the trade presents the best chance for success with special attention to the risk:reward ratio. Therefore, I typically don't put the entry at the lowest level (in a bearish pattern) because it would negatively impact the risk:reward. Hopefully that answers your question, but I still am a little unclear. Feel free to ask for further clarification if I haven't completely answered your questions. Brad

Dev

August 24, 2009 at 08:41 AM ET

i am a member

rck66

August 24, 2009 at 04:05 PM ET

Hi Brad. I have read and know you have touched about the high range bars as the main reason a trade will be invalidated and it makes perfect sense. And while, if i remember correctly, you said that the range of the bars was discretionary, wouldn't it be best to put a number on it based on ATR? say, 1 1/2 ATR of previous X bars. Also, about these high range bars, are we supposed to be looking for them on the time frames you show on the recommendations? or can it be in another time frame since the bars on the 30 min chart will not be the same as the bars on the 4hr chart.
Thanks.
Also wanted to mentioned that I took your earlier recomm to go short NZDUSD but I placed my entry above your stop, as I noticed that the high for the week was 6885 and it seemed to me that the stop you put in place was too close to the entry spot. I was able to get like 20 pips out of it. Has a study been done on your recommendations about SAR entries and if they are profitable? It seems to me that if a key stop area (which is usually confluence on other fib retracements, extensions, supp, etc) breaks, then that means the market has a strong bias in that direction.
Rick

bgareiss

August 24, 2009 at 08:03 PM ET

I don't know what to say except that long bars are somewhat subjective. I usually look at whichever chart I originally draw the pattern on to determine long bars. I think they are usually pretty obvious when you see them, but it is difficult to make a quantitative determination on what constitutes "long bars". I have published several articles on that topic. As far as profitability, we post the results of our trades on FX360.com. We would not do this is we were not confident in our ability to get good results over a long period of time. I am not exactly sure what you are asking in your last comment, but we trade these patterns for reversals. Feel free to ask for clarification if you have further questions. Brad

j-tse

August 25, 2009 at 04:07 AM ET

IS it a move below 0.6795 or is it 0.6715 will invalidate this trade? There's a difference in your swing techinical and this article.....Kinda confused as to how to spot the invalidation.

AND also, I'm having serious trouble loggin into my account on your website, I've registered two account, and both are locked out, I am only typing this comment on the cache login that was saved on the computer. Can a website admin help me on this issue.....and see if its a system wide problem.........

bgareiss

August 25, 2009 at 01:52 PM ET

Always use the most recent report to guide your invalidation levels. The 0.6795 level was given yesterday and the original 0.6715 level was given last Friday. Therefore, we are using the 0.6795 level for now. Of course that could possibly change this afternoon. I will look into your issue regarding logging in. Please send your name/login information to bgareiss@gftforex.com and I will forward it to the proper people. Brad

Mark P

August 26, 2009 at 01:52 AM ET

Hi brad kind of off subject since its for another currency pair but the usd/jpy already wasn invalidated. My question is though the wick crossed your recommended threshold. Now do you include the wick to invalidate a trade or the body of the candle?

bgareiss

August 26, 2009 at 02:12 PM ET

Once the price crosses a level like that, it is invalidated. It can be a wick/shadow or the candle itself. Brad

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