Potential for a Cut and Reverse in AUD/NZD

Good afternoon traders,

When a higher time frame level fails, the setup doesn’t have to be discarded. If the higher time frame level is strong, don’t ever discount a cut and reverse strategy to play the level from the opposite side.

We have one such example of this strategy playing out on the AUD/NZD chart today.

AUD/NZD Daily:

Click on chart to see a larger view.

The daily chart shows the key AUD/NZD level that’s in play. As you can see, price has broken higher through the zone formed by previous swing high resistance, and then pulled back to retest it on the other side.

But after failing to make a new higher high, price has dropped straight to the bottom of the zone and is looking like going straight through on momentum.

AUD/NZD Hourly:

Click on chart to see a larger view.

Now zooming into an intraday chart with a look at the hourly, I’ve drawn up the price action that I was describing above. The green markings represents short term resistance turned support, while the red represents the shot term support turned resistance.

With the initial long failing to make a higher high, shorts now comes into play. Aggressive traders would manage their risk around the short term level, while more conservative shorters will place their stops above the higher time frame level.

Best of probabilities to you!

Dane Williams – Vantage FX

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Source: Vantage FX Blog