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Long-Term GBP/NZD Sell Offers 300 Pips of Potential Profit

Last updated 7/3/2012 1:53 PM EST (GMT -5) 3 Comments

Last week, we highlighted a strong opportunity to sell GBP/NZD within the context of a longer-term bearish trend line. The trade triggered early in the week and reached our profit target near 1.9600 support relatively quickly, resulting in a 160-pip gain in just a few days.

As we noted then, the pair had formed an uncannily clear downtrend, with no retracements over 300 pips. This pattern has continued over the past week, and with the pair now inching below previous support at 1.9600, a new selling opportunity is in the cards with room down to the next level of support at 1.9200.

Zooming in to the 4hr chart, we can see that a slightly modified version of the bearish channel highlighted last week has continued to push rates lower. At this point, a retracement back toward the top of the channel would present a strong opportunity to enter into a sell trade with a favorable risk/reward ratio.

Specifically, traders could set a limit sell order at 1.9540 (below the weekly high and previous-support-turned-resistance at 1.9600) with a stop at 1.9640 (beyond the bearish channel) and a target all the way down at 1.9250 (above the Monthly S1 pivot at previous support at 1.9200). Because this trade offers such an aggressive risk/reward ratio, with nearly 3 pips of reward for each pip of risk, we will look to move the stop to breakeven if rates drop to 1.9400 after entry. This trade would be invalidated if not triggered by the end of this week’s trade.

Potential Strategy: Sell if GBP/NZD bounces to 1.9540, stop at 1.9640, target at 1.9250. Move stop to breakeven if rates drop to 1.9400 after entry.

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Comments (3)

Joshua Krupnick

July 03, 2012 at 08:22 PM ET

Nice Setup, I'm in. Hopefully there is nothing unexpected in the fundamentals that would change this bearish trend.

Joshua Krupnick

July 06, 2012 at 02:30 PM ET

It's a shame this wasn't triggered. Matt, in your opinion has it now hit support? It looks like we are coming up on a good opportunity to go long based on the 4 hr and daily charts. Do you agree it's a good time to go long based on the technicals?

MWeller

July 07, 2012 at 10:45 AM ET

Hi Joshua - Good question! I would be very cautious going long in the face of such a prolonged and consistent downtrend.

At some point, a bottom will emerge, but I prefer to follow the trend until it ends.

-Matt

About The Author

Matthew Weller has been actively trading the various financial instruments including stocks, options, and forex since 2005. From his first exposure to forex, Matt was fascinated by the vast liquidity and volatility offered 24 hours a day in the forex market. He has specialised in currency trading ever since.

Matthew focuses on candlestick patterns and pivot points to identify logical trade entries and exits. In addition, he has discovered a passion for teaching others about trading and has conducted over 400 educational webinars on different aspects of trading the forex market. His analysis has been quoted in Reuters, MarketWatch, and on the NASDAQ newswires.

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