NZD: USD – Head & Shoulders

Price has broken below the neckline of the head and shoulders set up, I posted on Monday.

This post outlines one approach to trading strategy for readers interested in following progress.

  • Entry applied a price filter and sets a stop entry 4o pips below the neckline. On that basis the sell entry would have been this morning at about .7835
  • The initial stop is behind the dashed resistance line. This gives some scope for a retest back into the body of the head and shoulder formation
  • The target applies the “measuring rule”. This projects the height of the pattern from the point at which price broke the neckline.
  • If there is a retest that doesn’t trigger the initial stop, the stop loss is moved down behind the peak of the corrective retest rally
  • Once price gets 61.8% of the way to the target, the stop is moved using a trailing stop

Cheers

Ric

About Ric Spooner

Over 30 years market experience - professional trader, broker, director
This entry was posted in Forex, Market, Trading and tagged , , . Bookmark the permalink.

5 Responses to NZD: USD – Head & Shoulders

  1. dv34 says:

    Totally agree with your stop loss – the congestion areas in patterns are often good stop levels…that increase R:R, although right now I think a short term bounce is coming…, USDCHF weekly has big butterfly 1.618 extension to D, the EURUSD is all one sided (everybody and their poodle is short…), I think a good kiwi trade could be to watch NZDJPY at 63.44 stop 63.66 looking for targets much lower…. I am currently short USDCHF, swing long EURCAD and position EURGBP long, short GBPJPY looking for 120.10, which would bode well for EUR longs… am bullish EUR short term (1-4 days) and anything against the USD

    • dv34 says:

      Exited GBPJPY above break of yesterdays high, now has morning star, should be looking for longs EUR, GBP, AUD, NZD intraday… EURUSD/ USDCHF behaving as expected (short/ long stop squeeze) now risk rally = lower USD (QE3 speculation) classic buy/sell the rumour, cover the fact…

  2. Hi Ric – looked at this closely too but got scared off by the Commitment Of Traders report (while acknowledging the time lag). There has been a steady building of net long positions from June 26 (576 contracts of 100,000) to July17 (6939 contracts).

    Would be interested in your view on the usefulness of the COT report in general and in particular when you are looking at a measured move of the H & S type that might be in opposition to that trend. Perhaps it is still a proven high probability setup?

    As always enjoying your analyses…

    John

    • Ric Spooner says:

      Hi John,

      I haven’t ever analysed the effectiveness of these reports as a predictive indicator so I don’t have a particular view.

      My general expectation though is that they would be contrary indicator with reversal patterns like H&S. I imagine that ideally long commitments may typically build into the peak of a bearish reversal pattern and then start to really fall away following a break out of the pattern.

      Currency futures are a relatively small part of the fx market though so I am not sure how representative trader v hedger commitments are?

      Perhaps other readers have more experience with this?

      Cheers
      Ric

  3. dv34 says:

    Some key resistance levels are not far away on the US indices… Dow 13212, stop 13346 and S&P 1408.47 stop 1423.40, if the break above these peak highs then possibly run a bit more… these are what I consider monthly resistance levels and likely to hold. Pretty low risk for a monthly chart trade – could be looking at nice R:R if they do – I will definitely be shorting there…

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