Shorting the Forex Trend Lower in AUD/NZD

AUD/NZD broke a major psychological area last week and looks to be holding below that area since then. Fakeout or will the trend continue?

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AUD/NZD 4 Hour Forex Chart

AUD/NZD 4 Hour Forex Chart

Fakeout or breakout? Of course we won’t know until we know, but with my man Forex Gump making economic arguments for a relatively strong Kiwi and a potential interest rate cut by the Reserve Bank of Australia at the next policy meeting, I think the odds are better than average this trend lower may continue.

With volatility creeping lower after the break, I’m not going to wait for a deeper pullback before scaling into a short position, but my stop will still be a wide one incase there is a surprise from one of the many mid-to-top tier events coming from the forex calendar in the next few weeks before the RBA meeting in March. I’m keeping my target open, but my first initial re-assessment level will be 1x my max risk. Here’s what I am doing:

Short half position AUD/NZD at 1.0400, max stop at 1.0650, initial target at 1.0250
and
Short half position AUD/NZD at 1.0500, max stop at 1.0650, initial target at 1.0250

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1:1 if both positions are triggered; more if I decide to let it run depending on the market story.

Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!