AUD/USD Descending Triangle: Straddle Trade Fail

Trade Update: 2011-05-26
Waaah! I got faked out on AUD/USD’s descending triangle! I’m so sad I want to eat a whole gallon of ice cream. 🙁

If not for the School of Pipsology’s lesson on how to focus on the process, I’d probably be belting out Abba’s The Winner Takes It All as loud as I can!

Huge heartbreak aside though, I was able to analyze where my trade went wrong. Remember when the comdolls were losing ground against the Greenback early this week? Well, the Aussie bears were able to drag AUD/USD to 1.0490, a level I thought would signal a downside breakout, before the pair started to reverse its price action and move inside the triangle again. Boo!

AUD/USD Descending Triangle

As it turned out, weaker-than-expected economic reports from the U.S. highlighted the sluggish pace of the country’s economic growth, which weakened the dollar and provided comdolls like the Aussie a breather. What’s more, gold prices started reaching week highs again!

Looking back on my trade idea, I see that I had more support for a bullish trade than a bearish one. I guess I shouldn’t have placed a straddle trade and just waited for an opportunity to go long instead.

As it is, here’s how my trade turned out:
P/L: -100 pips, -0.5%

Some of my friends are telling me that I should’ve placed my entry level a bit below than my original entry to avoid a fakeout. What do you think? What else could I have done to at least minimize my losses? Give me a shoutout on my @Happy_pip Twitter account or on my Facebook page!

Oh, and special thanks to @EnkhbatOne and @b_wellington for sharing their thoughts on Twitter! I bet a lot of other traders would learn tons if only more brave souls step up and share their trading thoughts no matter how big or small!

Till next time,

Happy time

Trade Idea: 2011-05-18
After experiencing a 100-pip win with USD/CAD, I’m ready to go back to trading AUD/USD! Am I gutsy for trading a pair that has given me heartaches, or am I just too determined to trade it?

To be honest, I put more weight on technical analysis in my decision to take another shot at AUD/USD. You see, I just spotted a bounce from the 38.2% Fib on the daily chart, which is also near a major support for the pair (the 1.0550 handle). Don’t believe me? Just take a look at Forex Gump’s RBA Minutes article and Big Pippin’s Daily Chart Art for today! Even they spotted these setups!

AUD/USD Daily Chart

Anyway, aside from a psychological level and a Fib, I’m also counting on Stochastic to support my trade idea. Aside from hanging out and crossing at the oversold region, Stochastic is making lower lows that complements the pair’s higher lows. That’s a giant bullish divergence right there!

What makes this trade a toss-up in my opinion is the fundamentals. Since I really want to go long, I’m hoping that the FOMC won’t change much from its dovish stance, especially since commodity prices, which have been pushing inflationary pressures higher, took hits for the past couple of days. Besides, didn’t the RBA just release an extremely hawkish meeting minutes? Word around the street is that it will increase its interest rates soon…

On the other side of the coin, I’m not sure if the selloff in commodities will continue for the next few days. Heck, I don’t even know where risk sentiment will go! For now, I’ll probably wait for the FOMC meeting minutes, or at least until the Aussie shows momentum in the charts.

Here’s how I plan to place my straddle trade:

Long: Buy at the break of the triangle (around 1.0750), place stop loss below 1.0550 then aim for previous high near 1.1000.

Short: Sell below the break of 1.0550, then aim for around 400-500 pips, which is approximately the same height as the descending triangle pattern.

I’ll add more details as soon as I enter a trade. I just hope I don’t get caught in a fakeout!

So what’s your take on the Aussie? Should I pick a bias and enter a trade now, or should I stay away from this altogether? You can reach me through my @Happy_Pip Twitter account or my Facebook page, but it would be much better if you drop a comment below! You’ll never know how many traders you can help with your trade ideas!

Happy time

  • Jess Laventall

    Other thing to notice is the level of volume trading for this pair. Looks to be about 3x normal on a daily basis compared to last month. So I’d say traders are taking notice. My guess is that any bit of news (positive or negative) in relation to gold, China, US economy will be the trigger and result in a high velocity move, though I wonder if it will actually change the long-term trend. Forest Gump’s bearish case for AUD seems to be pretty solid.

    Just gotta keep watching those commodities (and China of course!). I’ll be positioning in solidarity with you, albeit on a demo account basis.

    • happypip

      Thanks for the feedback @google-6d62f65f9781955652d0c02052a27188:disqus  🙂 Like Forex Gump, I used to have a bearish bias on the Aussie as well, based on the huge drop in gold prices lately, but interest rate prospects caused me to shift stance. The latest RBA minutes were just too hawkish in comparison to the Fed’s policy outlook so the long-term trend of AUD/USD could still be upwards. I’m thinking this could just be a big pullback from the strong move of AUD/USD but I still have short positions below the triangle in case any economic catalysts trigger a breakdown. Happy trading!

  • Amit

     the setup is very appealing but in 1hr charts i do see a resistance around 1.0713.. once it breaks that i will vote for a buy… also we need the RBA to provide better indication towards interest-rates to support a sure move back to 1.10

    • happypip

      Yup, I noticed that resistance around 1.0700-1.0715 on the 1-hour charts too! That’s why I set my buy stop order more than 30 pips above that area to catch a breakout.

      Weak U.S. data being released lately will probably delay the Fed’s decision to tighten policy, but we’ll have to wait for upcoming data from Australia and statements from the RBA to see whether they’ll be hiking rates soon.

      Thanks for the feedback @9d90e2038942500f15004f718d8f20fb:disqus !

  • Fx Czar

     U always surprise me Ms Piplette

  • Fx Czar

     u always surprise me out of box trade ideas. Five stars for this one

  • Nader

    hi happy, i feel bad for you but wish you best luck nect time,
    allow me to provide my view on AUDUSD, attached pic will be more eaisy to describe

    best wishes and luck

  • Nader

    i expect stop hunting players will show up