Long Aud/Usd: Old School Trade

[ForexChaser.com] In one of our previous posts (link here) we mentioned that buying the Aud/Usd near the 200-day SMA, in the 0.8930 area could represent a very good opportunity for an aggressive trader. This call was made at a time when the S&P futures was showing signs of weakness, so this was not a trade for the ones faint of heart.

The Long Aud/Usd call was indeed profitable, bringing up to 70 pips to those who took the trade. Moreover, the Aud/Usd was an old-school trade that relied mostly on the price action of the pair over the last couple of sessions. In the following paragraphs, we are going to share how ForexChaser.com team analyzed and saw the potential of this trade.

1. From a fundamental point of view, the Australian dollar is seen as the strongest currency among the majors. The Australian economy has only been briefly touched by the credit crisis, while exports to China are still holding strong. Long Aud/Usd positions are also supported by the overnight swap that the pair pays.

Also worth noting is that China was among the only Asian markets that closed in the green Thursday morning, when we decided to take this trade. This is generally seen as bullish for the Aud/Usd.

2. The daily chart of the Aud/Usd is pretty clear, the pair is heading higher for almost three months. This confirms that we are in an uptrend, and we should favor long Aud/Usd plays overall.

3. The 4-hour chart shows that the pair was trading in the 0.8900-0.8950 area, near the support trendline that has been holding the market July 06 2010. Obviously, we can have only two outcomes in this region: a break or a bounce. Considering the above mentioned analysis, we prepared our radars for a potential upside bounce.

4. The 1-hour charts offers two important clues: the pair bottomed in the 0.8920 area during the prior day of trading, and was not able to push any lower. Moreover, since the market was heading towards the Asian open, the trading volumes were declining at a strong pace. This assured that the pair could not push any lower at this time of the day.

Having this in mind and noting that the S&P futures have barely moved, ForexChaser.com team was not sure if this will be just a small bounce off the 4-hour support line, or a full blown trend. Knowing the trending characteristics of the Aud/Usd (especially lately), we decided to enter Long Aud/Usd.

5. The Entry was chosen based on the 15-minutes chart. The trade was open at the first candle that closed above the Neutral Pivot Point.

7. The first Take Profit area was set in the 0.9020 area, the same place where the market traded ranged bound over the course of the last few sessions. The second target was set in the 0.9060 area, which is the highest value touched since mid May.

We booked about 80% when the fist target was reached, leaving open just 20% of the original trade. The Stop-Loss of the second ticket was moved in the 0.8945 area, at the breakeven line.