When Fundamentals trump Technicals – NZDUSD -83

January 21, 2011

forex, FX Trading, Trading, Trading Set-ups

So here’s a little story about a swing position I had on NZDUSD this week.  Whilst my Cable trade took all the plaudits, this one was also working its way to completion.

I’d had a technical set-up last week on NZDUSD and it set-up again this week.  The trade was set and it triggered on Monday evening as you can see below.

Price was triggered on the large bullish bar on Monday and I was in at 0.7736.  I only had one position on this trade at half my usual risk for these set-ups.  Anyway one triggering in it went nowhere and spent most of its time underwater as price traded sideways after the bullish spurt north.

Finally on Tuesday night / Wednesday morning NZDUSD made its mind up and started heading north.  Not with any real speed or momentum but at least it was going in the right direction.  During the late morning, lunchtime period of Wednesday price has pushed to the north by a total of +50 pips. However my good news was not to last.  A slew of economic news and commentary from the US and China prompted a flight into the US Dollar safe-haven.  Price reversed, swiftly and strongly.  Furthermore there was some major NZ economic news coming out that evening and if you’d looked elsewhere you’d have seen that NZD was being sold off across the board.  Not a good signal!

What convinced me that this trade had turned for good was when the 4 hour chart printed a beautiful outside reversal bar (as depicted by the arrows).  For the uninitiated this is a powerful reversal signal and consists of price pushing north to new highs before reversing and then closing lower than the previous two bars (as it did here).  You can see these price action patterns across all timeframes and they usually are a very good signal for a reversal. As indeed it was here! (Take a look at the daily NZDUSD chart which also went onto to show this price action pattern).

Price barreled on down all the way to my stop level at 0.7653.   This is just a good example of why we use stop-losses.  Price continued another 120 odd points further down past my stop loss level. Yes I took a loss, but I planned my trade and traded my plan.  Had my Stop loss been much lower I would have just taken a bigger loss.  The smarter traders amongst us would have had the foresight to see the impending shift and reverse their position and go short.  At present that is not in my plan for these Growth Account trades.  However as I take these longer term positions I am seeing some lovely scalping set-ups in and around the longer term picture.  That maybe a future discretionary element of my trading but not today.

So there you go, in a few hours I’d gone from  being +50 to stopped out at -83!  When price decides to change direction on the back of fundamental news flow then you’re always going to be fighting a losing battle regardless of how good a technical set-up you may have traded. It happens to the best of us. It’s part of the game. Enjoy your weekend and trade well.

FXTrader Paul

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About FXTraderPaul

A professional Trader and Coach, FXTraderPaul blogs about his adventures from the front-lines of FX Trading. A Trader and educator who can walk the walk as opposed to merely talk the talk!

View all posts by FXTraderPaul

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