100-PIP TRADE ON AUD NZD
After pulling back from a short-lived breakout above its large Pennant setup recently, this pair now seems to be forming a small Range at the Resistance of that Consolidation. This created an opportunity to go long as it began to form the 1st Support point of this new setup. Entry took place using the signals on the Daily and 4 Hour Charts to provide a quick 100-Pip trade between Friday and Monday morning.
From the Daily Chart below, we can see the Pennant setup that was initially broken to start a rally in favour of the Aussie dollar. However, this would last for only a few days before the pair returned to the Resistance.
DAILY CHART- BREAKOUT & PULLBACK
The nature of the candles that had pulled back to this Resistance suggested that a small Range was going to be formed. These bearish candles were small and slow and are the type normally associated with the start of a Consolidation setup. These candles were then followed by a Bull Candle that pointed to the formation of the 1st Support area and the start of the rally to form the first uptrend of the Range.
DAILY CHART- START OF RANGE
On the 4 Hour Chart, we could see further evidence of this imminent move. Inner and Outer Downtrend Lines were being broken as the Daily Chart formed that strong Bull Candle signal. This was followed by a break of a Counter Trend Line (CTL) that pointed to the continuation of this rally.
4 HOUR CHART- BULLISH SIGNALS
Entry then took place at that Bull Candle, with the Stop Loss below the low of this U-Turn. The target was set to just below where the Resistance of this Range would be formed.
4 HOUR CHART- ENTRY SETUP
After only 20 hours of actual market activity between Friday and today, the target was hit.
4 HOUR CHART- TRADE RESULT
Confirmation that the target was correctly chosen came in the form of that large Bull Candle. These candles are strong indicators that a trend has ended and will be followed by a period of sideways movement and market indecision.
Trading opportunities such as these tend to be seen when the market is about to start a period of consolidation with limited liquidity. One of the main drawbacks of these setups however, is the uncertainty of the targets if the opposing boundary of the Consolidation has not yet been formed. Setups that may appear to be forming a Range could actually turn out to be a Pennant.
POSSIBLE PENNANT SETUP
This would reduce the number of Pips available and lead to a quick, unexpected loss as the market pulls back sharply to start the next bearish wave. This is one of the risks discussed in my current Trading Manual as well as in the upcoming one focused on Consolidations. If a Pennant was the actual setup being formed here, the distance between Resistance and Support would have been too small to justify trading. In such a scenario, it would be better to wait until a breakout actually takes place to then trade it with greater certainty and a larger Pip target.
From the Daily Chart below, we can see the Pennant setup that was initially broken to start a rally in favour of the Aussie dollar. However, this would last for only a few days before the pair returned to the Resistance.
DAILY CHART- BREAKOUT & PULLBACK
The nature of the candles that had pulled back to this Resistance suggested that a small Range was going to be formed. These bearish candles were small and slow and are the type normally associated with the start of a Consolidation setup. These candles were then followed by a Bull Candle that pointed to the formation of the 1st Support area and the start of the rally to form the first uptrend of the Range.
DAILY CHART- START OF RANGE
On the 4 Hour Chart, we could see further evidence of this imminent move. Inner and Outer Downtrend Lines were being broken as the Daily Chart formed that strong Bull Candle signal. This was followed by a break of a Counter Trend Line (CTL) that pointed to the continuation of this rally.
4 HOUR CHART- BULLISH SIGNALS
Entry then took place at that Bull Candle, with the Stop Loss below the low of this U-Turn. The target was set to just below where the Resistance of this Range would be formed.
4 HOUR CHART- ENTRY SETUP
After only 20 hours of actual market activity between Friday and today, the target was hit.
4 HOUR CHART- TRADE RESULT
Confirmation that the target was correctly chosen came in the form of that large Bull Candle. These candles are strong indicators that a trend has ended and will be followed by a period of sideways movement and market indecision.
Trading opportunities such as these tend to be seen when the market is about to start a period of consolidation with limited liquidity. One of the main drawbacks of these setups however, is the uncertainty of the targets if the opposing boundary of the Consolidation has not yet been formed. Setups that may appear to be forming a Range could actually turn out to be a Pennant.
POSSIBLE PENNANT SETUP
This would reduce the number of Pips available and lead to a quick, unexpected loss as the market pulls back sharply to start the next bearish wave. This is one of the risks discussed in my current Trading Manual as well as in the upcoming one focused on Consolidations. If a Pennant was the actual setup being formed here, the distance between Resistance and Support would have been too small to justify trading. In such a scenario, it would be better to wait until a breakout actually takes place to then trade it with greater certainty and a larger Pip target.
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Duane Shepherd
(M.Sc. Economics, B.Sc. Management and Economics)
Currency Analyst/Trader
Contact: shepherdduane@gmail.com
Twitter: @WorldWide876
Facebook: DRFXTRADING
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