This trade breakdown is by Connor Ballinger, a member of the Duomo Team supporting our Premium Members.
This was an opportunity for an NZD/USD long trade at 8:45 am UK time on 02 June 2020.
The market is in a clear downward structure with consistent lower highs and lows. A trade from somewhere estimated to be the top of one of these waves would be great, but it’s not the only opportunity the market can present.
The price has now broken through the trend line and the swing low of the last wave and it seems we do not have any major paths of resistance to indicate the end of this current wave for some time (trend line across the previous highs).
With this information in mind, we can move on to analyse the shorter-term structure.
It is clear that in terms of the structure there is a short term bullish trend with consistent higher high and lows.
Obviously, this is the opposite of what we saw in the longer term. The most obvious statement to take from this would be that the shorter term structure may continue until we reach the long term point of resistance.
We had a break out of the trend line mapping the short term-highs, you can see how the price struggled with it over the past few days and then broke with some momentum.
A retest of this level from the other side may be a good opportunity.
4-Hour Time Frame
This time frame helps us break down the shorter time horizon that we just analysed.
We can see the price has broken out of the high trend line and bullish structure continues.
We have then had a very clean retest of the trend line, closing as a Type 2 at 2am followed by a bullish reversal candle, which closed at its highs at 6am.
In this case, we are not looking to trade the level itself, since we have already reversed. However. it is very logical and reasonable that the price continues upwards from here since there is no immediate path of resistance across any of the time horizons we have looked at. Therefore, I am happy to continue to drop down in time frames and look for an entry.
1-Hour Time Frame
Trend line anchor points (A=Body, B=highest wick)
Using a similar variation to the 4-hour trend line we can see that we had the re-test from the other side at 8am closing with a doji candle. This indicates a decrease in the momentum of the extreme short term move down.
I have also included the minor swing high here. This is a level I don’t intend to use as part of my entry analysis, but it may help with finding the most suitable place for a stop loss based on it being a nearby path of resistance.
You can also see that both the long term and short term structures are bullish.
At this point, there are several possibilities. However, we are starting to form a pretty good picture and the probability of the bullish move is increasing. I do not want to enter based on this alone, so I will drop down in time frames again for more information about this situation.
15-Min Time Frame:
On this time frame the 1-hour short term structure becomes incredibly apparent and obvious. Here the waves are also well formed, which makes analysis more straightforward.
Usually, when using a Fibonacci range we would use re-entering the range (100% level) for the TMP. However, in this case that would make the trade invalid and I think a much more reasonable selection would be to use the swing high as the nearest realistic obstacle for the price.
The stop loss will be just below the 127.2, I have also covered the minor swing high mentioned in the 1-hour time frame by a couple of pips.
Initial R:R was 2.2:1 however, the probability that we surpass this and continue the short term bullish structure seems realistic and the chance for a higher return is there.
R:R to the current price is around an 11:1.