Transcript of Video
Hello, this is today’s video analysis for January 31, 2019. Today we’re taking a look at the Australian versus the US Dollar [AUDUSD] for today’s trade analysis.
Starting here on the daily timeframe, not too hard to see that since yesterday and the US FOMC information, we’ve seen a USD selloff since that 2PM hour yesterday when FOMC was released and the fed was a little bit more cautious, pulling back away from some of their aggressive interest rate hikes that we’ve seen in recent months. And we saw that selloff of the USD, causing the AUDUSD to take a significant turn higher.
You could see pushing yesterday from the lows down here into the 0.7160, 0.7145 zone, the orange-shaded area here. Pushing through and all the way now into the 0.7270s as it continues to pressure higher. So, the question is how do we trade this. Do we just simply buy it and hope that it’s going to continue to go up, or are we looking for some pullback?
Well, I don’t think we want to buy at the highest high. That’s never really going to be the best tactic for us because we have higher risk and lower potential reward at the highest high. Your risk at this point is that the market turns around and goes down. So, logically, you would expect that if it’s going to go down, it would get back under the yellow zone, 0.7235, and then continue to go down. So, your risk and stop loss would logically be underneath the yellow zone, underneath today’s high.
So, your risk is higher. Your potential reward as you look back in history, and I’ve put these two black circles back here on the left-hand side showing you that even after aggressive movements higher back here, we saw a strong bullish push. It pushed through the yellow zone and made it to the purple zone here on this one as well. Strong push higher. Broke through the yellow zone and went to the purple zone before falling back down.
So, we know that the closer it gets to the purple zone, which is 0.7300 by the way, we’re looking at resistance and right now our best estimate for support would be the yellow-shaded area. So, any stop loss that we would put underneath the yellow-shaded area would be at risk of our risk or stop loss that would be underneath there would be the amount we would lose if the market turns around and goes back in the other direction.
So, risk-reward, not balanced if we were to buy at the high. So, does that mean we just abandon the buys altogether? I don’t think so. With the momentum we’ve seen higher, I think that buying is still the best idea. It’s just a matter of timing. You don’t want to buy at the highest high. Remember buy low, sell high. So, in this case, instead of buying at the highest high, and we can really see this on our first circle example on the far left-hand side. If you were to buy it back here, where’s the lowest-risk opportunity to buy it back here?
Well, it would’ve been at the yellow zone. In fact, we did see a bounce off the yellow zone and it spiked back to the purple zone once again before falling. So, even if we have any inclination for higher movement, it’d be better to do it as close as possible to the yellow zone, 0.7255, 0.7235, minimizing our risk, making our stop loss smaller. Maximizing our potential gain back to 0.7300 and the purple-shaded area.
So, that makes the most sense to me. So, don’t buy at the highest high. Let it dip back down to the yellow zone. Better risk-reward. Let’s take it down to the four-hour timeframe. It doesn’t really change it. Just gives us a little bit of a different viewpoint – let me zoom in one more time – of that same scenario.
Here we are above the yellow zone. So, again, you don’t want to buy up here because your risk is higher and your potential gain is smaller back to the 0.7300, purple zone up here. So, again, what I would intend on doing is letting it dip back down. Settle down into 0.7255, 0.7250 as support before buying once again to target the purple zone. The way your risk is smaller. Your potential gain is larger for the AUDUSD today.
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