Traders bring personal bias to the market. We can’t help it, we are human after all (even if it isn’t always apparent!) Acknowledging our own bias is a key to overcoming it as an obstacle to successful trading. Lucky enough to work for more than 20 years as a professional trader, I’m also lucky to count many successful traders as friends, and the most common bias we share is to sell AUD/USD – but THIS time we have a strong case.
Its clear the global economic picture is better now than six months ago. Growth in China is stable, the US has (for now) resolved its political log jam, and while Europe remains a concern the potential to blow the global financial system apart is greatly reduced. Rallies in “risk” assets such as shares, industrial commodities and commodity currencies reflect this improvement. However, what will provide the next leg up?
On balance, the global picture is supportive of a higher AUD over the medium and long term, especially with central bankers in the US, UK, Switzerland and Japan seeking lower currencies. Regardless, markets rarely go anywhere in a straight line, and IMO the short term offers significant downside risk for AUD/USD.
Note the six month range between 1.0150 and 1.0624. With AUD/USD near the top of the range, and the RSI close to 70%, I’m happy to short here.
Once again I’ll split my trade in two. This not only allows me to take advantage of any short term moves towards 1.0624, but gives more alternatives if there’s a pull back to the minor support around 1.0360. I could take profit on half the trade, and run the other half in case of a move back to the bottom of the range at 1.0150. Here’s what I’m thinking:
Sell AUD/USD at current market, stop loss above 1.0624, target 1.0375
Sell AUD/USD at 1.0615, stop loss above 1.0644, target 1.0168
While my targets are clear, I will trail the trade if AUD/USD moves lower because of the positive medium and long term outlook.