Someone asked me over the weekend about the AUDNZD trade idea I mentioned last week. To summarize, we were watching for a break above trend line resistance that extends from the October 26th high.
Such a move would not only produce a potential buying opportunity, but it would also suggest that the six-month bullish reversal pattern is nearing completion.
Shortly after the December 20th commentary, the pair closed above the trend line on the 4-hour chart. However, the very next candle closed back below it.
This is an excellent example of why patience is key. Because the next candle did not produce a buy signal nor did it respect the new support level, I remained on the sideline.
While I do occasionally trade from a level without a buy or sell signal, I rarely do it on an intraday chart. This is particularly the case when recent momentum isn’t in my favor, which is the case if I’m interested in buying the AUDNZD.
The 4-hour price action above tells me one thing – that this level is not being respected on a 4-hour closing basis. As such, it’s likely going to take a daily close above it followed by a successful retest as new support.
Of course, the more conservative approach is to simply wait for a daily close above the neckline at 1.0765. A close above this level would complete the six-month structure and expose the measured objective near 1.1300.
We’ll see how this potential inverse head and shoulders pattern plays out in the new year. But at the moment, it’s still just a watch list item.
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