"Rules are for the obedience of fools, and the guidance of wise men".
Attributed to Harry Day, WW1 flying ace, by Douglas Bader
Feel like breaking the rules? Here's a trade that will cause both fundamental and technical traders to struggle. This sort of trade appeals because there are unlikely to be many positioned for the move - meaning if it occurs there could be a scramble that drives prices further than they might otherwise go. Get ready to BUY AUD/USD.
You can hear fundamental traders saying "no way". Dollar strength is ongoing, lower commodity prices are hurting the Aussie. Sell AUD/USD. Technical traders are shaking their heads. "The long and medium term trends are down, and the trend is my friend". Sell. With all that in mind, have a look at this picture:
1) The short term down trend is broken by sideways trading.
2) There is clear divergence between price action and the RSI. Note how the recent RSI lows are higher (blue arrows) as the price made lower lows.
3) The MACD has crossed, well below the zero line.
The combination of these factors may be viewed as a strong indicator of a trend change. Another attractive element is the near stop loss level - below the recent low at 0.8088. Targets are worth contemplating. A shallow corrective move up could reach the 38.2% retracement level around 0.8360. A full blown correction (acknowledging that the long term direction for AUD/USD is down) could reach the 61.8% level around 0.8525.
50 points at risk, and a potential for a 220 or 380 point gain? Time to break the rules.