Trendline Trading: GBP NZD
Trading trends is an excellent method of execution for traders looking to take advantage of the long term momentum of a currency pair. Currently, one of the strongest trends developing in the Forex market has been the GBPNZD. The pair has dropped as much as 1773 pips from its May 2012 high at 2.1058. The pair at present is trading 215 pips higher, off its June low of 1.9285. As the pair moves against the prevailing trend, traders will look for fresh technical levels to enter new sell positions. One of the ways we can do this is by finding resistance in a downtrend, using a trend line.
Pictured below is an 8Hour chart for the GBPNZD. To aid in the analysis of our established downtrend, we have connected a series of common swing highs to form a resistance trendline. Once the trend line is established, traders can look to take new sell positionsonce price moves up to this point of resistance, so long that a candle body does not close above it. A break of this trendline would invalidate our analysis at least temporarily and traders would be best to look for other opportunities elsewhere.
Trendlines can also be used in conjuncture with other forms of support and resistance. Below we have included a Fibonacci retracement in conjunction with our trend line analysis. Traders can look to place entry orders to sell were these two forms of resistance meet. This way using an entry as opposed to a market order, traders do not have to actively monitor their charts in anticipation of taking a new position.
My preference is to sell the GBPNZD near where our trendline and Fibonacci resistance converge, at 1.9570. Stop orders can be set above resistance of our resistance line under 1.9700. Profit targets should look for a minimum 1:2 Risk/Reward ratio, with first profit targets near the previous low.
Alternative scenarios include price breaking higher, temporarily concluding the mentioned downtrend.
---Written by Walker England, Trading Instructor
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