Here we have NZD/USD on the 2H chart.
Price recently had an impulse down move, and then an upward correction. The upward correction stalled when price hit resistance on multiple major moving averages, and hit a key . With these 2 resistance levels converging and creating a dynamic , it is clear there is quite the resistance ceiling here, and I am expecting price to fall from this level.
As well as the resistance ceiling proving that downside is likely, now we need to prove that not only is there circumstantial evidence that price could fall, but also physical evidence. I decided to study the chart closely and I discovered an important development, which provides physical evidence of downside move. See below:
When analyzing the pairs behavior after the down impulse and correction, I discovered price action created a support channel as the upward move was taking place. The support channel would indicate up trend after the down move if it holds. However, the support channel was broken, right where the resistance ceiling was found.
^ This is not a coincidence. It is going down.
There is 2 ways this trade will likely play out. I have outlined both trading scenarios below, as well as pointing out my preferred scenario.
- Price breaks down from current levels, all the way to the target level on my chart at 0.6760.
- Price breaks down, but beforehand, it retests the previous support channel as a new resistance channel to confirm the downtrend. If price uses the previous support channel as a new resistance, then this confirms the down move and resistance ceiling are definitely in play and having an effect on price action.
Bare in mind that however price decides to achieve my downside target at 0.6760, that price will likely have impulse legs and pullback structures in smaller time frames as the move progresses (As you would expect in a healthy trending move)
Also bare in mind that we want to see dollar continuing in it's current path to support this trade. A major move in Dollar current trend would effect this trade collaterally.
I have added my other recent FX ideas into the related ideas section of this post. I would appreciate it if you could view my other FOREX content and give it a like as this motivates me to post more content.
I will be updating my analysis starting when next week when the trade is active.
Any questions, feel free to connect.
Trade cancelled. No position considered.