Tight RR Trade - .6593 Key Level

FX:NZDUSD   New Zealand Dollar / U.S. Dollar
It appears the Kiwi has been building impulsive moves higher followed by corrections lower. From an Elliott Wave perspective, circle wave 3 stopped at the 1.618 extension of the circle wave 1 measurement. This is a common relationship between '3' and '1'.

If this is the case, then the proposed wave '4' should hold above the Nov 19 wave '1' high of .6593. Therefore, that price can be used as a stop loss. Targets lie at .6730 (wave 5 = .382 * wave 1-3) and .6848 (wave 5 = .618* wave 1-3). This yields better than a 1:2 risk to reward ratio.

Sentiment on the Kiwi for the past couple of years has been consistent. I find it interesting how for the past 2 years there have been more buyers in NZDUSD yet price has fallen from nearly .85 to the current .66. Now, the number of long traders has dropped to nearly a 2 year low perhaps signaling a bottom is in or is nearby.

Kiwi's Speculative Sentiment Index currently sits near -1.3...this sentiment zone between -1.3 and -1.8 is the lowest in the past 2 years. Sentiment is a contrarian signal so as it falls, look for bullish price patterns.

Follow real-time sentiment readings HERE.
Twitter: @JWagnerFXTrader

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Remember, the RBNZ rate announcement is released on Wednesday at 3p ET. This will likely create volatility, price gaps, and potential slippage in any trades. There is an increased risk of holding the trades through a news event due to seasonal illiquidity strains. Therefore, be mindful and consider closing down trades in advance of the news release.
+1 Reply
DavidRoberts JWagnerFXTrader
How do you aproach it JW? Do you sometimes close it down, and then reopen the trade straight after, if it hasn't jumped to far?
Do you come out of i completely, or just really tighten the stops?
JWagnerFXTrader DavidRoberts
David, you mention a couple of options. Let's address them:

1) Tighten stops - this doesn't help you much unless your stop loss was 300 pips wide and now it becomes 100 pips wide. If you tighten from 100 pips to 20 pips, you are still at risk of price gap and price slippage so tighten the stop doesn't help you much. You could still get filled several pips away from the stop loss.

2) Get out completely - the safest exposure in trading is to not be in a trade! Therefore, spreads widening doesn't impact you. Market illiquidity doesn't impact you. You might miss a trading opportunity but clearly there is more risk so the reward isn't as fruitful anyway. Trading is a marathon and not a sprint. These are just 2 of 52 weeks in a year.

3) Reduce exposure by closing down a portion of the trade - therefore, what is left is a small trade size in which a significant price gap in either direction doesn't affect your P/L by much. How much do you leave? Answer this question...if you didn't look at another chart or log into your account until January 4, how much trade size would you be willing to leave in the market? Essentially, a size so small it doesn't really matter what happens.

As for me, I would NOT do #1.

For my trading, I consider #2 or #3.
+2 Reply
DavidRoberts JWagnerFXTrader
Many thanks Jeremy....yes, I have been caught out too often just tightening the stops!
so complicated, Don't know how to figure out multiple Fibonacci(S) could you please, explain what levels have you used for fibbos, and what is the strategy, would really appreciate that, it looks amazing!
nzd will cut interest how can it go up ?
Hi pyromus - going into the announcement are expectations...often times those expectations get acted upon PRIOR to the announcement. Also, consider this...expectations are about 50/50 for a rate cut. So a cut is not locked in and half the people are likely going to be disappointed. Read more on the RBNZ expectations -> https://goo.gl/cZ4fsV
pyromus JWagnerFXTrader
we will see
great analysis....thanks for the idea...
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