Never miss a story from Jeremy Wagner

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to Jeremy Wagner

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

As US Congressional leaders debate the next step towards the US debt ceiling, the USD has been selling off and losing value. 91% of the FXCM retail traders have been using the recent weakness to begin buying US dollars versus the Kiwi (New Zealand Dollar). With the NZDUSD trading at multi-decade highs, we have a good chance at a good risk to reward ratio by following the trend and buying the NZDUSD pair.

How_to_Trade_NZDUSD_using_Sentiment_body_Picture_1.png, 91% of Traders Short NZDUSD : How to Trade NZDUSD using Sentiment

As of July 28, 2011 11:35 GMT

The recent data on FXCM’s proprietary SSI positioning reveals 10 out of 11 FXCM retail traders are short the NZDUSD. Many times, the retail traders try to pick tops and bottoms against strong trends and they typically end up with losing trades. The NZDUSD exchange rate is trading at new highs not seen since it began free floating. Therefore, the trend is strongly pointing to the upside.

When there are a significant amount of traders positioned against the direction of a strong trend, we have a sentiment extreme set up. Now, we simply look for a technical reason to enter the NZDUSD in the direction of the prevailing trend (up).

How_to_Trade_NZDUSD_using_Sentiment_body_Picture_2.png, 91% of Traders Short NZDUSD : How to Trade NZDUSD using Sentiment

(Created using FXCM’s Marketscope 2.0 charts)

The market thinks the black price channel is important because prices have been confined within this channel for the past 10 days. Prices are near the bottom of this upward sloping channel giving us our first technical reason to enter the trade long. Additionally, the MACD line is poised to cross the signal line adding a level of confirmation to the trade.

Enter the trade at current market levels with a stop just below the recent swing low near .8675.

We will look for twice the distance as our take profit level. Current stop loss is 46 pips away, so look for a take profit level of at least 100 pips or at .8820. This gives us a 1 : 2 risk to reward ratio.

Risk no more than 5% of your account balance on all open trades.

Additional educational resources

How to Trade with Support and Resistance Part 1

Trading Support and Resistance in Forex Part 2

Trading with MACD

Determining Risk to Reward Ratios

Learn how to identify trade set ups based on SSI in real time with live webinars. Inside DailyFX Plus we offer 2 weekly webinars devoted strictly to SSI while several other webinars reference it in the trading opportunities (your live account username and password is required to get into DailyFX Plus). Our instructors will share with you key levels of support and resistance and how to identify trading opportunities based on SSI signals.

Jeremy Wagner contributes to the Instructor Trading Tips articles.

To receive more timely notifications on his reports, email to be added to his distribution list.