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We looked at a short USD/CNH trade a few weeks back, and things didn’t pan out quite as planned. Such is trading. If the current set-up doesn’t pan out, then adhering to the “max of 2 failed attempts on an idea” rule will apply.
To put the whole idea into context, a month ago there was a big key-reversal on the weekly chart near long-term resistance. This primed USD/CNH to trade neutral at best, likely lower. Since then we’ve seen a couple of attempts to trade higher following weakness, with yesterday’s down day having started just below the August 23rd swing high.
With momentum turning down, looking at the past few weeks, yesterday’s turn could post a lower high kicking off more selling in the days/weeks ahead. Looking at equal legs, the decline off the highs was about 1700 points, placing a target on a decline from yesterday’s high to down around 6.72.
Placing a stop above the highs created yesterday and on Aug 23rd (6.9050) with an entry at current prices (6.8468), leaves us with a risk/reward ratio of right around 1:2, sufficient enough. If momentum is strong as price rolls towards the target it's a good idea to see if it can't continue to roll on, a good strategy for potentially extending trades beyond the initial target. Especially since, in this particular case, there isn't any highly visible price support until 6.60.
USD/CNH Weekly Chart (Big Reversal followed by lower high potential)
These 4 tenets can help bolster your Confidence as a Trader.
USD/CNH Daily chart (Looking for low 6.70s)
***Updates will be provided on these ideas and others in the trading/technical outlook webinars held on Wednesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday’s for the Becoming a Better Trader webinar series.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at@PaulRobinsonFX