Trading decisions hinge on careful market analysis and a well-defined strategy. My previous trading signal, issued last Thursday, did not activate because the price of the AUD/USD currency pair failed to reach the predefined support or resistance levels that day. For today’s trading, I will focus on identifying potential short and long opportunities using specific entry points combined with precise risk management. As always, it’s crucial to remember that these signals are not guarantees, but strategic suggestions based on my analysis.
Today’s AUD/USD Trading Signals
Here are the recommended trading parameters for today, Friday, January 9, 2025. These signals are designed for the AUD/USD currency pair and include specific instructions for both short and long positions. All trades must be entered before 5pm Tokyo time, which is an important timing constraint to consider. The risk management aspect is also vital: I am recommending that each trade should not risk more than 0.75% of your trading capital. This ensures that even if the trade moves against you, the overall account is not excessively vulnerable to losses. Careful position sizing is essential for consistent trading success; do remember it for every position.
Short Trade Ideas: Capitalizing on Downward Movement
My strategy for short trades involves waiting for a specific bearish price action reversal signal to form on the hourly (H1) timeframe. This timeframe allows for a balance of timely action with reasonably reliable patterns. As traders we must avoid jumping into trades based on fear of missing out; instead trade on solid setups. Specifically, I recommend going short if one sees a bearish price action reversal occur, immediately after the price makes contact with one of the following key resistance levels: $0.6192, $0.6207, or $0.6218. Once the short position is open, it is equally important to manage risk. Set the initial stop-loss at 1 pip above the local swing high, which is simply the highest price reached in the most recent price movement before the signal, to give the trade a chance to work. To safeguard profits and reducing risk, move the stop loss to the breakeven point (stop loss equal to entry price) once the trade is 20 pips in profit. In addition, it is crucial to secure some profits; I advise closing 50% of the position once the price reaches the 20-pip profit target. The other 50% should then be left to run and potentially generate a larger profit. This strategy allows you to take some profits off the table whilst still allowing the opportunity for the trade to take advantage of potential additional movement.
For example, imagine the price of AUD/USD hits $0.6207, and a bearish engulfing candle which completely covers the previous green candle forms on the H1 chart. This meets the criteria, it’s a bearish reversal, and a short position should be opened. The stop loss is then placed 1 pip above the high of the candle. If the price then moves 20 pips down, the stop loss is brought to the breakeven price, and half the position is closed, with the remainder left to run until a predetermined stop loss or take profit is hit.
Long Trade Ideas: Spotting Opportunities in Price Rebounds
Now let’s examine the long trade strategy. Mirroring the short trade procedure, it involves waiting for a bullish price action reversal signal on the H1 timeframe. Similar to our short entries, this ensures price action confirmation before entering the trade. Go long when a bullish price action reversal occurs upon the next touch of one of the following price levels; $0.6166, $0.6126, or $0.6102. Set the stop loss to 1 pip below the local swing low, referring to the lowest price during the most recent price movement before the trade is initiated. Just like with the short positions, also move the stop loss to breakeven once the trade has gained 20 pips in profit. Additionally, close 50% of the position once the price reaches 20 pips in profit, leaving the remainder as is to allow more potential gains.
To help understand this strategy, imagine the price of AUD/USD drops and meets the support level of $0.6166, where a bullish pin bar candle appears on the H1 chart. This constitutes as a strong bullish reversal pattern and signifies a good opportunity to enter a long position. The initial stop loss is positioned 1 pip below the low of the pin bar. If the price then rises 20 pips, move your stop loss to the breakeven point and close half of the long position. Let the remaining position run, with a stop or profit target in place to close the trade.
Understanding Price Action Reversals
It is important to understand the rationale behind the term “price action reversal.” The most reliable way to confirm a price action reversal is to watch for significant candle formations on the hourly time frame. A number of classic candlestick patterns can signal a reversal such as a pin bar, a doji, an outside bar (where the current candle engulfs the previous one which has a high within its range), or a simple engulfing candle with a close above the close of the previous candle (for bullish reversals). These are all visual cues, which signal potential shifts in market direction.
For example, a "pin bar" candle has a long wick and a small real body, looking like a pin where the majority of the action was buying or selling, but the price closed back in line with the opening price. A bullish pin bar suggests a price rejection followed by buying in the case of a downtrend, whereas a bearish pin bar suggests selling pressure, and a possible reversal from an uptrend. Similarly, a "doji" candle shows indecision, and when it appears specifically around a critical support and resistance level, it might signal a possible reversal, and the beginning of a new trend. Engulfing candles also give strong signals, especially if they are large and close significantly higher or lower than the body of the previous candle. By carefully examining the candle action around the price levels given, we can establish whether a trade is worth taking. These levels and zones are important areas to watch for price action.
Analysis of AUD/USD Market Dynamics
In my previous analysis, I clearly showed a bearish outlook for the AUD/USD pair, which has since turned out to be true as the price has indeed decreased. My analysis that highlighted the long-term downward trend and weakness in the Australian dollar and strength in the U.S. dollar was accurate, contributing to the continued downward price action. While I had originally looked to short the pair at $0.6300, which did not materialize, the overall bearish sentiment remains.
The fundamental factors that drove this trend remain in place. The U.S. dollar continues to benefit from its ongoing strength, while the Australian dollar is weakened by recent Australian inflation data that exceeded expectations (annualized rate of 2.3%), plus disappointing sales figures released earlier today. The Australian Dollar is seen as a risk asset so during times of world economic uncertainty, the dollar tends to increase in value against these.
It is especially important to pay attention to key technical levels. The price has now dropped close to a four-year low, and if it falls below $0.6170, that would be highly noteworthy. Such a break would be significant, creating uncharted territory for the price which might see it fall further towards the psychologically powerful $0.6000 level. The price chart shows a long-term linear regression analysis, demonstrating a steep bearish trend that largely adheres to the 2 standard deviation boundary, which also supports this bearish projection.
My approach now is to patiently wait for a bearish price action reversal at the resistance level of $0.6192 before entering another short trade. This methodical approach aims to minimize risk and maximize the odds of a profitable outcome. As for fundamental data, there are no major economic announcements today related to either the Australian or the U.S. Dollar, meaning that the current technical trends are likely to continue.
Summary
Today’s analysis focuses on strategic trading signals for the AUD/USD currency pair, with a strong emphasis on price action around key support and resistance levels. Risk management is key, with a strict instruction of only risking 0.75 % of capital per position. Entry points for short trades include $0.6192, $0.6207 and $0.6218. Long entries should be sought around $0.6166, $0.6126, and $0.6102, all dependent on respective bullish or bearish price action reversals, like a pin bar or an engulfing candle on the H1 chart. Once a trade is in profit by over 20 pips, the stop loss should be adjusted to breakeven to secure the principal amount, while closing half of the position, leaving the remainder to potentially accumulate more profits.. The overall market is bearish for AUD/USD with the US Dollar expected to grow stronger and the Australian dollar weaker due to underlying fundamental differences and technical trends. Any break below $0.6170 might trigger a sharp drop towards the $0.6000 price level. The data suggests the AUD/USD pair remains in a downward trend.
Frequently Asked Questions (FAQ)
Q1: What does “price action reversal” mean?
A1: A price action reversal refers to a change in the direction of price movement, typically signaled by specific candlestick patterns or trading activities at key price levels. It suggests the end of a trend and the initiation of a new one. Bullish reversals usually come at the end of a downtrend, and bearish reversals at the end of an uptrend.
Q2: What is a “swing high” and “swing low” in trading?
A2: In trading, a "swing high" refers to the highest price point reached within a specific period, often a period of rising prices. Whilst the ‘”swing low” is the lowest price point reached during a period of falling prices. These are crucial reference points for setting stop-losses and calculating profit targets.
Q3: Why is the stop-loss brought to “breakeven” after 20 pips?
A3: Moving the stop loss to breakeven (the price of entry) after the trade has gained 20 pips profit, does not guarantee a return. However, it eliminates the risk of financial loss on the opened trade. It’s a way to secure profits while allowing more room to capture potential gains, reducing the risk of the trade becoming a loser.
Q4: Why do you recommend closing 50% of the position after 20 pips in profit?
A4: Taking 50% of the position off the table after a 20 pips profit is a profit-taking strategy. It locks in part gains and reduces risk, while leaving the other half to the trade’s potential to continue running in our favor and gain further profits. It’s a balance between risk management and profit optimization.
Q5: What timeframe should I use for these signals?
A5: These signals are designed for analysis on the hourly (H1) timeframe, but the support and resistance levels will work on all timeframes, whilst the specific signals are built to work on the H1 chart.
Q6: Does risk management mean I am guaranteed a profit?
A6: No. Risk management is all about controlling the amount we stand to lose, not guaranteeing that each trade will be profitable, as no trades will be 100% successful. These signals should only be a part of your own trading plan.
Q7: If nothing high importance is scheduled for today, does that mean I should trade anyway?
A7: The fact that there is no news for the AUD/USD pair simply means that the current technical analysis is more likely to remain as is, and if you enter a trade based on a strong setup, the technical strategy that is driving trends is more likely to continue. Trading should only happen if the setups themselves present themselves. The time constraints given must also be remembered.
References
- Investopedia
- DailyForex
- TradingView
- School of Pipsology