I’d like to alert you to another very special trading setup I’m seeing right now.
I think AUDUSD could potentially move 500 to 1000 pips, or possibly even more over the next several weeks. And yes — that’s despite its horrific recent downtrend.
I’m not a contrarian trader automatically, by the way.
In fact, I’m more of a “beachball opportunities” trader. By that, I mean that when an interesting market is all coiled up, it’s like a beachball held underwater and then released to generate a flood of profits. When a coiled-up pair jumps …
… it really jumps!
Also, I’m not a day trader either. I like to take my time about picking out the very best trades — and then letting them run and run.
Now I’ll sometimes close a trade on the same day if something goes exceptionally well, but normally my trades play out over several days. I like trades with small, limited risk and the potential for very large payouts.
In fact, that’s how I sustained a very lucrative trading career on Wall Street for 23 years before retiring.
So keeping that in mind, let’s talk more about AUDUSD and the chances of a significant rally.
Here’s the monthly AUDUSD chart:
You can see the large, pronounced V-top that began in late 2008 at the 0.625 level, climbed all the way up to the 1.10 level in 2011, and then turned tail to drop to the 0.71 level where we see it today.
Therefore this market has made an enormous movement both up and down between 2009 and 2015. Yes — we could be seeing a double-bottom here (two support areas at or near the same level). They don’t have to at exactly the same price, though.
The second bottom just needs to represent a support area. One where we might see a nice bounce to the 0.825 level — or even higher.
In fact, you can look back even further to 2005 to see an additional bottom that formed very close to the current price too. Look at how high that bounced!
More On Double Bottoms and a Key Reversal Bar Too
Now let’s drill down to the weekly level to see why I’m feeling optimistic we’ll have a real bounce in AUD USD soon.
As you can see, this pair has been in a serious downtrend for quite awhile. However, what looks like an emerging support area seems to be forming at or near the 0.70 level.
That’s because there’s a double bottom showing there, plus one of my favorite bars: a key reversal bar in the most recent week. That key reversal (the blue bar at the edge of the chart) is where we made a new low and then closed at the upper end of the week.
In fact, we have what looks like a triple bottom by this point. I’ve drawn three red arrows to show you the bounces at or near the 0.70 level. Now, this triple bottom won’t be confirmed until we penetrate above the neckline at the 0.74 area.
But I believe we’re already seeing some early signs of a nice turnaround and a bounce.
This gives us a place to get in where our risk:reward ratio is strongly in our favor. We’re in a position to potentially make at 200 or 300 pips on this pair. And if we do in fact penetrate the neckline we could go substantially higher to the 0.80 area. That’s as much as 1,000 pips.
That’s why I think we’ve got a fantastic trade brewing here in AUD USD.
Falling Wedge, Rising Profits?
But there’s one more chart we need to look at, and that’s the daily chart for this pair.
So keeping in mind this pair has fallen all the way from 1.10 to 0.70 with barely a pause, it’s now grabbed a foothold at current levels and it’s forming a very intriguing price pattern.
In fact, it’s a price pattern I’ve made a lot of money on when trading accounts for a couple of big Wall Street clients.
The pattern? I’ve mentioned it a couple times already because we’ve seen it at the monthly and weekly levels. And that’s a double bottom.
As you can see, back in early September we hit or approached the 69 level. Then it happened again at 0.695 in late September.
Please note the two key reversals in late September (I’ve labeled them as H-Bottom). The price tried to go lower but closed at the opposite end of the bar on two separate occasions. So that makes it a powerful H double bottom because those key reversals were so close together.
Meanwhile the best-fit neckline on this daily chart is at the 0.73 level. That’s where the price moved after that H-bottom before retracing in a falling wedge pattern.
It’s actually a very symmetrical wedge and I’ve drawn it on the chart for you.
Once we break above the wedge, that’s another confirmation that the AUD USD is ready to move significantly higher. (The 3 double bottoms at monthly, weekly and daily levels — plus that wedge — are the 4 reasons I like this trade so much.)
But right now I’m waiting for confirmation before taking this trade.
We must break above the wedge before I go in.
Well, it’s because waiting is consistent with my strategy of waiting for ‘insurance day bars’ to signal the breakout against a trend.
The way to spot insurance day bars is to look for a key reversal, an inside bar, or a narrow range bar. (We haven’t truly seen that yet).
You see, I don’t just jump in once I assess patterns and price action. I look for further confirmation to ensure that what I’m looking at has the best possible chance of actually happening.
Remember the old adage: plan your trades and then trade your plan?
That’s exactly what I do with my trades. So yes — I do believe the way this price pattern is setting up indicates much higher AUD USD prices. But I’m waiting for a final confirmation.
Would you like to know when it arrives?
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