Wednesday, October 6, 2010

AUDUSD—New high

My long from .9603 hit its profit target earlier at .9774 for +171 pips. Yesterday when I took the trade, I had estimated the top of the channel at .9790 and had set the target just under it. Had I been awake and trading earlier, I probably would have taken part of the trade off the table and moved the target higher since this pair doesn't seem to want to quit. I wasn't.

Now the issue is whether to enter another long. The 2008 target of .9851 is a juicy one Supporting this price target is that the top of the channel on the weekly chart is .9850 or so. At this point, though, I need to see some sort of pullback. This pair has had six up weeks. Yesterday, the low of .9542 dipped slightly below last week's low which is not a good sign. It doesn't mean it can't continue to climb—perhaps even to parity—but it does mean that there are hints it wants to take a rest, retrace a bit, gain some energy.

One nearby possible support for a long is .9694. I'd like to see it do better than this though, perhaps down to yesterday's .9542/20 (50% of the move from .9331 to .9750 and the 20 daily SMA) for a retest. Beneath that is .9462, .9396 (.382 of move up from .8770), 9357, and .9281/70. Below that would signal possible weakness down to .8770.

Below is a three-hour, three-box, closing price point and figure (P&F) chart for AUDUSD. I've written before about them. I keep both a daily and three-hour one for the pairs I track. I like them because they remove time from the equation and show only supply and demand. They don't change unless price changes by a predetermined amount. X's are up columns meaning price is increasing; 0's are down columns. If a price is steadily moving up then the X column becomes higher by adding another X. In this case, each X is worth 30 pips so there has to be a closing price at least 30 pips higher than the prior one. If closing price decreases by 90 pips (three boxes) then a column of 0's begins showing the price decline.

As you can see from the chart below, the AUDUSD has many long columns of X's. Yesterday was the first pullback in a while and it didn't come close to getting to the 45° internal trend line that should provide support. Only if it gets down below .9270 will I get a solid sell signal from this chart. Furthermore, it has exceeded the price target I calculated some time ago of .9630. My daily chart has price targets of .9728 and it has exceeded that as well.

The bottom line here is that while I believe AUDUSD may move higher, I'd like to see a better entry point for a long position.

Here's the P&F, 3-hour, 3-box, closing price chart:

© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

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