AUD/USD Selling Opportunity

Good Evening Traders,

I am placing an order to go short with the AUD against the USD. This is counter trend, but I think the AUD is seeing the end of it's long climb, and I see strong evidence that a significant fall is eminant. Details of specific entry and exit points, and the factors involved in the alert are detailed below. Happy trading.

Recommendation:
Sell 1 unit AUD/USD at 90.30, Stop Loss at 92.25, Take Profit at 87.50
Sell 1 unit AUD/USD at 91.20, Stop Loss at 92.25, Take Profit at 84.50

Commentary:
The story for the past several months has been to go long with the AUD against almost every currency. It seemed the AUD could do no wrong and conditions were picture perfect for a climb that just didn't seem to want to end.

But the picture likely changing. China is tightening their monetary belt, South Korea had a slower than expected growth in Q4, and there are fears that the projected increases in Asian demand may be overly optimistic. Furthermore, on February 2nd, the RBA is expected to raise rates from 3.75% to 4.00% before sitting on the sidelines for several months at a minimum. Recently, the strength of the overall global recovery has been called into question given the slow 4Q growth reported in Germany. The domino effect is already begun: The slower global growth is affecting commodity demand, there is a retrenchment in stocks, and the once broad 'risk-on' trade is waning, and to top it all off, speculative long AUD positions are at their highest levels in nearly 2 years.

The technical picture only confirms a tumble in the AUD. A long-term double-top is in place at 93.00/95.50, price is currently below most of the key daily moving averages, and is below the Ichimoku cloud, and the Tenkan line is poised to cross down below the Kijun line. All of these things combined constitute a strong "sell" signal.

I am expecting some volitility surrounding the RBA rate decision. I am looking for the price to be driven up to our entry price prior to the rate decision announcement, or during the fall-out. Should that fail, I will look for other possible entry points.

From the Desk of
Aaron Reid
BDI PowerGroup
Forex Insider

Attention Forex Beginners: Have a Trading Plan

When most people start trading, they do not put much thought into their trades. They will either buy or sell a currency pair (probably the EUR/USD) because they think they see a trend or maybe even because they put a moving average on the chart. Sometimes there is no reason at all for the trade, they just want in. Either that trade nets a small profit or the trades starts going against the new trader. The trader that gets the small profit will feel invincible and likely base trades in the near future on the same reason as the first one. Of course they expect every trade to win. The trader whose position moves against them leaves their position open, stares at the their computer without blinking, and laments that they will get out if the market only goes back to break even.

Sooner or later, the trader who won their first trade puts on a loser and acts much like the trader above who lost their first trade. After a large loss to the account, the trader then puts on a large position trying to win it back. Inevitably that trade crushes their account, or a trade soon after will. Sound familiar?

The reason that new traders blow out their account is that they assume trading is easy, they don't realize the role their emotions play in trading with real money, and they have no trading plan. Well, it doesn't take long to learn on your own that trading isn't easy, so we won't spend too much time discussing that. However, using a consistent trading plan is the only way to reign in your emotions and develop consistency in your trading. If you enter at random places and exit when your "gut" tells you to, you are in for a lot of pain.

Every remotely successful trader I have ever spoken with has a trading plan. These traders do the same thing every time, occasionally tweaking one aspect of their plan at a time. Trying to change everything at once makes it impossible to tell what is working and what is not. We will go through the important aspects of a trading plan below, and we will go over how the FX360.com technical analysis works with these principles.

First off, I believe it is imperative to identify your entry, stop, and profit target(s) before entering every trade. If you try to determine your exits once you enter the trade, your emotions will skew your view of the facts unless you are a robot. If the exits are planned before entering, it is tough for your emotions to screw you up. By placing your exits in the system when you enter the trade, it is much easier to stay disciplined to your plan. Another advantage is that you don't have to stare at your computer 24 hours a day waiting for a place to exit.

I also feel it is important to know your risk:reward ratio before entering a trade. How on earth can you determine your risk reward:ratio if you don't plan your stop and profit target(s) before entering the trade? It can't be done. To measure this ratio, simply divide the distance between the entry and the profit target by the distance between the entry and the stop. Everyone's concept of a "good" risk:reward ratio varies, but I prefer to have a risk:reward ratio around 1:1.5.

Once you have planned your entry and stop, you can also determine your position size. Your position size should generally be the same percentage of your equity each trade. Most traders risk 1-3% on each trade, using the same percentage for every trade. In other words, all trades are weighted equally. The same amount of capital should be risked on a trade with a 300 pip stop as a 30 pip stop. In order to determine your position size, simply multiply your total equity by your percentage risk per trade (typically 1-3%), which is the amount of money you should risk per trade (X). Next, multiply the number of pips between your entry and stop by the currency's pip value (Y). You can also draw a line from your entry to stop using the value calculator to get Y. Then divide X by Number Y to get the number of lots you should trade. Once you practice this, it is easy.