Aussie Dollar hits 38.2% Fibonacci level - time to act

Aussie Dollar hits 38.2% Fibonacci level - time to act

The Aussie Dollar hit its 38.2% retracement level after the Fed decision and has parked around this key Fibonacci level in today's trading.

Aussie has also made it more than 61.8% of the way towards the target for the head and shoulders buy strategy outlined in 2 recent posts. 

This makes it time to switch over from a fixed to a trailing stop loss and start protecting profits using the strategy approach discussed in those posts.

Aussie Dollar CFD

AUDUSD Daily Click to Enlarge AUDUSD Daily
Click to Enlarge

With a strategy like this you could chose to use either trail the stop manually or take advantage of Next Gen's automatic trailing stop loss order.

In either case the basic approach is to set the initial trailing stop just below the candle that hits 61.8% of the way to the profit target. This is done just after that candle closes

Automatic Trailing Stop Loss.

You can easily switch from a regular to a trailing stop loss on existing positions in Next Gen. Just click on the stop loss level in the position blotter and modify the  order ticket

The number of pips in the trail would be set so that the stop begins just below yesterday's candle. Then if new highs are made, the stop is automatically trailed up.

Automatic trailing stops can be a big time saver with swing trading that uses say hourly or 4 hourly charts. You don't have to monitor the position all the time to protect profits.

Manual Trailing Stop Loss

Time management is not such an issue for longer term trend followers using daily charts.  Here, you can just check the market each morning and move the regular stop up behind the low of the candle that's just closed provided it has made a new high.

This approach fits more with the idea of your stop being triggered if a short term peak is made and is not dependent on a fixed number of points. For example, if the candle making the new high is only small, the stop will be close to the market. Some traders might not move the stop any higher than the 61.8% level so the trend has a bit of scope to wobble about above that level without triggering an exit.