AUDUSD at a break out point?

[Mercury]

AUDUSD could be about to complete a breakout of a possible ending diagonal pattern to the downside.  There is still a chance of a run up to the 7900 area within a larger scale Triangle but the oscillator indicators are suggesting a run down from here so worth a close stop short for me.

 

 

[Mercury]

After weeks of doldrums the yesterday got interesting for me and today looks like ti might continue in this vein.  The Aussie looks like it is going down on an EWT 1-2 (pink labels) rather than posting a higher high Wave 4 (Purple).  If this holds then this market is set to descend to a Wave 5 conclusion, which could be between 6000-6300.  Could the Aussie be pointing the way for other USD crosses?  Can't rule out a short term retrace today or Monday but big picture it does appear to be in a Bear run.

 

 

[Mercury]

I've adjusted by last daily up-sloping tramline position and still get a tramline breakout.  There is a small price gap is being closed and a retest of the tram or the resistance through the price gap top is possible after which as drop back down through lower support zone could spell a sustained bearish move in this market.

 

Anyone trading this?

 



[Mercury]

Adding some support to my GBPAUD assessment is the AUDUSD cross with a retest of a previous support & Tramline break at Fib 50% in the process of failing.  A rebound down from here sets up a long and strong run down in EWT Wave 3 with several Short entry points available.

 

For full disclosure I am already short and therefore have a Bearish bias, the alternative scenario of a final leg up to a higher frame Wave 4 retrace conclusion cannot be rules out yet but us becoming less likely as key commodity markets go into a bearish move.

 



[Mercury]

Doesn't look like many people are interested in the Aussie.  That's a shame because it is a relatively easy market to trade in terms of risk reward and could be about to offer loads of points Short.  The retrace I had earlier identified has formed a possible Pennant, a break of which could be about to occur.  If the market runs hard down through this that will be good confirmation of a likely longer term bearish move.

 



[MacD]

Hi  

Not wishing to negate your analysis or anything but for me (using a very simplified view of the daily chart) it looks like the AUD has just bounced off a rising trendline and is set to continue upwards.

I must add that I haven't studied much about EW theory and fibonacci wibbles etc.. so you may well be seeing stuff that I'm missing :smileyhappy: 

 



[Mercury]

Not at all  Negate away to your hearts content, your views are just as likely to hold water as mine.  Remember that I target only 30-40% winners (timing is everything).

 

Looking at your chart I have a number of observations to offer as follows:

1. Your trend line looks ok in isolation but it isn't anchored at the beginning of the whole move up and therefore is not likely to be a main long term trend line in my experience but a temporary one and more likely is more relevant at lower time frame charts (4 hr or 1 hr) have you looked at these?  If you look at my Daily chart below the Grey line is more likely but it is too shallow for me at this point to call it a valid long term trend line and more likely it is a retrace pair that will encompass the whole of the retrace up to Wave 4 (Purple label)
2. I can't find a matching upper tram line for your line - I like to work trend lines in channel pairs I call tramlines or multiple parallels (as I have done with my Green set on AUSUSD).  It takes time for this to emerge of course and it may yet but until it does I could not call your lower line a valid long term trend line without a matching upper parallel one.
3. If you look at the Weekly chart you will see that the main trend is down and until we got a major trend break this remains valid.  The EWT count and other indicators suggest to me that another leg down is likely on this market and that also fits with my USD analysis (rally expected) and commodity analysis (Bear move expected).  The Aussie economy is heavily mining orientated.
4. Finally your lower line is more likely the lower part of a Triangle formation (see pink lines on my Daily chart), a break of which indicates a strong move in reversal of the short term trend.  Now we have a Daily and Hourly Triangle this is an even stronger set up so the break (either way) is a significant event.  Just have to watch out for a fakeout and return inside the triangle or a break and retest of the triangle.
5. Net I am biased towards this move up being a retrace rally, which may or may not follow a tramline pair but often not and I am looking for a breakout into a final leg lower.  Any breakout to the upside is likely to be short lived before an eventual lower leg.



[MacD]

Thanks for that very comprehensive (and very helpful) reply  It just confirms how much more there is to the picture than meets the eye. Different time frames seem to show such divergent outlooks. And I'm not sure what type trader I am yet - a swing trader or more intraday type positions - still very much in the "try it out and see if it suits me" phase.

Having said that - your comment about the pennant on the 1 hour chart does look interesting. A break to the low side seems to be underway as I type, thus confirming your thoughts. I might even be tempted to join you in that short :smileyvery-happy:

Good luck with it either way.

Mac

[Mercury]

As  pointed out in a separate thread , you have to try it for real to really learn but my feeling is that you really ought to have a clear methodology and strategy to be trying.  One that you have spent time practising and testing in demo account mode first.  There is a huge difference in approach and mentality between day traders and longer term traders, although many of the same disciplines and psychology is common to both.  If you are not clear on your strategy and method then you will not be clear on your trading set ups and triggers.  This will result in falling between two stools...

 

With respect to this trade, remember that we have seen an ending diagonal break and retest on 12-16 Aug at the top of the Daily chart Triangle and now this Pennant has formed near the bottom of the Daily Triangle.  The best place to Short would be on a retest of this Pennant (with a close stop as it could be a fakeout) but better still a confirmed break of the Daily Triangle & short term resistance around about 7580. 

[Mercury]

You lower line held overnight , which I now call a lower Triangle line.  If confirmed, and the strength of the move on the hourly chart seems to indicate this, then at least a retest of the hourly resistance zone is likely and possible another touch on the upper Triangle line.  At this stage I suspect the former as we have already had 5 touches on the Triangle but more are possible.  Currently I think the Daily Triangle is the correct a assessment rather than a move back up to the Weekly Fib 50% but even if that were to happen that would be the end of things so for me the strategy is to stick with the long term trend and wait for turning points for Short trades.

 



[MacD]

Hi  Thanks for the ongoing commentary :smileyhappy:

I haven't taken a position on this but will watch with interest as (or if) the hourly resistance zone around 7650 is approached.

 

With reference to your previous post about strategy and the 'caught between two stools' analogy, I find that trying to work out my 'style' or what trading methodology suits my personality is not really progressing in my paper trading account.

I just don't have the same sentiments or emotions as when I'm managing genuine trades. But I don't open that many 'real' trades, and when I do it's always a small or minimum position with a healthy stop loss added.

In general I just use my demo account to test out my more experimental (and sometimes whacky) trade ideas.

[Mercury]

OK that is good  and you are dead right about the limitations of demo.  I guess I was just responding to your comment about figuring out what kind of trader you want to be.  This I would not do live.  I too vacillated on this and it cost me dear.  And even after I chose my strategy and approach I am still learning and adding, sometimes the really hard way...

 

If I may offer the benefit of my bad experiences (i.e. substantial losses) I would suggest the following:

1. Pick one approach and after extensive, I might even say exhaustive, research and learning and then testing in demo then go live and give it a real go.
2. Set up some rules and guidelines for yourself within your method and stick to them
3. Focus on a small group of markets at first and get the experience you need to be successful, it is not just about exercising a method but getting a feel for a particular market so you can recognise the trends and trigger points.  I like related markets like a Triad of FX for instance.  Try to use less volatile markets at first (I would avoid the Dax, Nasdaq, Russell2000, commodities of any kind and the minor FX crosses (e,g, GBPAUD an kill you veru quickly).  A good one is EUR/GBP/USD.
4. Set up a minimum of 3 banks (i.e. expect to have to top up your initial account size twice) to get through the learning live phase
5. Keep a diary of your trades and analyse to ensure you are sticking to your method and to identify patterns of behaviour that result in losses (accepting that sometime losses are just losses and not errors)
6. If that doesn't work reassess your strategy and method OR realise trading isn't for you if you cannot address the fundamental issues you are having.
7. Use the forum to ask for input on your set ups and ideas and comment on others, it helps hone your analysis and gives you pause for thought.  For example your comment on AUDUSD resulted in me noticing the Daily Triangle, which I had missed.

Best of luck and remember losses are part of the job, money management and risk management is the most important aspect.

[MacD]

Cheers  - All advice gratefully accepted.

Specifically, your point about keeping a diary of trades is something I keep hearing/reading again and again. I really must get my act together and start doing this. At the moment I'm a bit haphazard in my approach, so it's on top of my 'to do' list as of today. :smileyhappy:

[Mercury]

the Aussie looks like it is taking another run at the lower support zone, will it be successful this time?

 



[Guest syrshiraz]

many thanks for the analysis!

[Mercury]

You are welcome  but I post it to get comments and challenge back so if you are trading the Aussie please feel free to comment and add.

[Apb]

Hi 

I have read through this thread this morning and have a question to ask regarding your statement of "I only target 30-40% winners". I'm intrigued to know how you manage your stop loss as you are clearly chasing some big winners and presumably looking to identify significant tops and bottoms?

 

I only read this thread as I too was looking for a top around the 10th Aug which has the potential to go much lower and take out the lows of January. As always once you feel a top is in place the market tries it's best to change your mind. Basically this is what I am interested in as you mentioned you are short although have you taken profits or are you sitting still with the potential to lose some money if it goes against you?

 

I enjoyed reading your thoughts on how to approach trading as I assume you have experienced the failures that only experience can teach you and have come out the other side - well done. I was interested in your response to the trendline that  identified - admittedly it is good if there is a parallel line to go with it - although a line that has a number of touch points over a 3 month period I would never take lightly and the more this market goes a break of that line will likely prove to be very significant.  

 

Keep up the good work of posting your thoughts.

[Apb]



 

Never posted anything chart orientated before so this is a first.

[Mercury]

HI ,

 

First of all let me comment on your chart.  Excellent work!  I had not seen the upper line you have and that indeed does constitute a reasonable tramline pair, especially with the prior pivot (see my version).  Now I think I have drawn mine slightly differently to yours because our lower lines are positioned a bit differently but that doesn't matter too much at this point, it is judgmental.  Therefore there could indeed be a valid pair or tramlines here pointing to the retrace continuing up to the Fib 50% at my Wave 4 label (circa 7930) but after that I would expect a final leg down.  As an aside it is not normal practice to draw an middle line as you have but rather to focus on the pair and then you can add another parallel line beyond the pair on a break if appropriate (it isn't always).

 

To give you a full answer to your question I'd really have to go into great detail on my approach, which time and space doesn't allow but suffice it to say that because I am a longer term trader I look for major turns and trends.  I use the Weekly mostly to discern the very long term trend and where we are in the cycle (see the weekly chart for perspective on why I think we are in for another leg down).  I use a variety of techniques to try and hone in on a likely turning point and then usually wait for a confirmation of a turn but sometimes do an anticipatory trade if the set up is very strong.

 

In the latter the Stop is close and exactly where depends on the set up.  In the former case the Stop will usually be just above/below the most recent zone of support/resistance and/or the high/low of the previous day/hour, again depending on the set up.  Failing that it is at my maximum allowable risk level per trade.

 

The other trait in my approach is to identify multiple scenarios and assess the likelihood of each then track each in an effort to hone down to one.  Therefore I would never suggest to ignore a solid trend line with multiple touches BUT as I seek turning points I actively look for a break of such lines, if it coincides with other tools and indicators.  Also the markets are never easy and if you wait for a particular scenario to be confirmed as the only one left it is too late to get in...  This is the trick to trading, you have to take a risk.

 

And that is why I wind up with a hit rate target of 30-40%.  I can never "know" what is going to happen and I don't want to get stopped out of a good long term position prematurely so I try to find turning points where I can place my stops as close as possible but I will leave enough room to not get stopped out prematurely.  Others day trade because they do not want to take such risk but actually the size of the trade X the distance is the risk of course so not surprisingly, compared to a day trader, I will most likely be taking smaller positions and holding them for longer.  If I can keep my losses small relative to my gains then the formula works out in the long run but only if I can get some good winners and stay in.  However I move my stops to Break Even as soon as I can and that is where I am now with my Aussie shorts in case the alternative scenario becomes manifest.

 

With respect to the Aussie my assessment was that we would get a turn in early Aug and so it turned out but it was not definitive and the alternative scenario of a final run up to complete the retrace is still there.  As well as the parallel lines there is also a potential Triangle and an alternative set of trams.  This drives people who desire simplicity crazy but I analyse what I see and that works well for me so I now see at least 3 scenarios as follows:

• We get a short rally now and a touch on the up-sloping tram (green) and then a drop
• We get a longer rally, maybe a touch on the upper Triangle line and then a drop
• We a rally up to the Fib 50% and then a drop
• Obviously there is a 4th, I am wrong and the long term bear is over...



[donaldprice]

Because the market may risking disappointment, I am seriously questioning If we see a move down in the short-term, my assessment could be wrong, but my eyebrows are raised to the possibility that we could see this pair go higher, due to the fact we may not have completed the final leg up. What is making me right now suspect this is that we have been in a triangle for a long time now and noticed the possibility of W-E at the bottom of the triangle, last touch that was rejected going lower. However I have not been actively trading this pair for a while now, simply due to time for analysis, which sometimes feels it can take forever, lol.

[Mercury]

With a break of my lower tram (or Triangle) line will this be a fakeout or a confirmed break lower?  There is every likelihood of a retest of the Triangle line before a drop but a fakeout is easily also on the cards.

 



[Mercury]

Looks like the retest I was wondering might happen is in fact happening.  The question is whether it will fail the retest and drop away or punch through and rally back up?  The case for the latter is that USD is going through a period of broad weakness, can this pair buck that trend?  I terms of the former scenario, a break and retest failure of a strong tramline is a great trading signal and this pair is coming into a retest at the Fib 76% (actually 2 of them drawn on different time frame charts).  One to watch and it may also be useful to watch the other 2 pairs of the Triad.

 

 

[Mercury]

I'm not really happy with the parallel tramline pair but have identified a Triangle that may fit better.  If the market turns at the level it is currently at then this set up could prove true.  A confirmed turn down here spells a strong run down for me and coincides with a potential strong run up on both GBPUSD and GBPAUD.  One to watch today I feel.  Can' yet eliminate a potential higher high to a wave 4 completion just yet but a strong move down from here would do the trick...

 



[Mercury]

Aussie frustration continues but perhaps a part of it is self inflicted in changing with each move rather than sticking with original thoughts.  My initial thoughts were Bearish and now I'm back to this.

 

With a Pin bar reversal recently and breaks of Triangles and parallel tramline sets I return to the Bearish set up bias and here I will remain unless there is a material break of the lower Triangle line.  If this happens I will simply wait for the inevitable (I think) Wave 4 turn back down.

 

On the short term I think a retrace back up towards thee Triangle line breakout area is quote possible and a turn there would offer a decent short opportunity.  Failing that a confirmed break of the Green up-sloping tramline would be a Short signal.

 



[donaldprice]

Aud frustration continues. I have introduced a possible alternative W-count, which any feedback would be appreciated. From late last week we saw some heavy selling of the AUD $ of which appeared that we may be receiving a nice impulse to the downside with a termination of W2 start W1 of W3. But WB (Orange) was acting as a support within this triangle at 50%fib level of which a significant bounce occurred. My overall view is still bearish, but because we don't know how the FED will react tomorrow, I think this is a wait and see approach and re-attempt to capture a selling opportunity when it completes is possible W-E scenario.



[Mercury]

AUDUSD has been an outlier in my broader analysis  in that I can see strong retrace moves elsewhere but not here.  There is a possibility that AUDUSD is coming up on a EWT1-2 end at a Triangle line retest but how does that fit with all the others?  Answer, it doesn't so barring a bearish move on all major commodities or the Aussie CB doing cutting rates a Fed no action announcement tomorrow ought to produce a rally here as well.  I really don't see a higher high to a Wave 4 top here so your A-E Triangle scenario does hold water in my view.

 

If the Fed does not raise rates then we can expect a rally against the USD and probably a commodities rally also (Stocks & Bonds too).  However I believe this rally will be short lived and then we will be looking to reverse into the long term moves that appear to be setting up on all markets.

[donaldprice]

Hi Mercury, yes, from what I can see, is that if the fed holds tomorrow, we will see a strong rally. It does appear as you say this will be short-lived, therefore waiting in the tall grass might be the best approach for now. It really does appear that markets across the board are just awaiting for tomorrow in order to make their move or at least positioning themselves.

[Mercury]

I think you are right , even the current Stocks rally lacks conviction and I wouldn't be surprised if it reverses when the US markets open.  That said, if the Fed sits on it's hand then we could see a decent rally (e.g. GBP/USD could rally 600-700 points) so not nothin!  Any Longs against the USD or on Commodities and Stocks would be short lived (week or two maybe) but could also be worthwhile prior to bigger reverse opportunities.  Obviously a Fed rate rise offers a very big Short opportunity.

[Mercury]

The Aussie has been confounding us all it seems but  may have it right with his Triangle OR we may indeed yet see a fresh Wave 4 high.  However in the short term I see some weakness on this pair as commodities turn weaker for a while.  I see the current move up as a Wave A and now we are in a Wave B, which may even go back down for a touch or near miss on the lower Triangle line before rallying into a wave C.  This matches my analysis on  GBPUSD and GBPAUD where I forecast rallies.

 



[donaldprice]

I agree with the ABC turning point Mercury, as even if this turns out to be W-E, which i too have some doubts, it must retrace to form an ABC of its own, therefore i would want to look for a C wave to take a small short before heading higher.