With my swing idea orders from yesterday’s post cooking, I thought I’d switch back to “Pick of the Day” mode with a price action review on AUD/USD. No news day ahead of big events generally means ranges may rule. Check it out!
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary day trading blog here.
Before we take a look at the price action and framework, let’s scope out the Fundies really quick.
The biggest new development for the day was that China raised their interest rate 25 basis points. Normally, this would be soul crushing to risk taking traders as it means a reduction of demand for raw materials from one of the world’s largest economies, but it looks like it wasn’t so bad for the Aussie. It held it’s ground and stayed positive against the Greenback for most of the day.
Other than that, no major news events from Australia or the US, which means range plays did have a better chance of success today. This is especially true for days that come ahead of major news events like this week’s Aussie Employment data tomorrow and US Trade Balance on Friday. Traders tend to stay on the sidelines and wait for the big events to be released to avoid being caught off guard and in a bad trade.
So, what levels would have been good to play?
From the chart above, we can see two pretty good range setups: resistance at the top DATR (1.0180) and support at the Asia session low (1.0114).
The consolidation at the top DATR was a strong indication that buyers weren’t as strong as sellers. Also, stochastics showing overbought conditions was another hint that the rally may be out of steam.
The resulting drop found resistance at area surrounding the Day Open (1.0136) and Week Open (1.0133) prices, but didn’t find a bottom until it retested the Asia session low. Stochastics were oversold and there was a quasi-spinning top indicating a reversal higher.
Each move was good for about 65 pips each, and if you used my usual stop of a quarter to a third of the daily average true range, 93 pips for AUD/USD, then a conservative 30 pip stop would mean a 2:1 return-on-risk for each move.
There was one more test (which I called out on my Twitter page) of the top DATR and that resistance held once again.
Today’s Take Away…
On “no news” days ahead of “big news days,” range plays may be your best bet. Look for turn signals like an overbought/oversold indicator reading, reversal chart patterns (or both), and always, always, always create a trade that gives you reward-to-risk ratios worth taking!