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Trading Australian Dollar Around Key Support Level


In early 2014 Australian dollar futures put in a low of 0.8632 and proceeded higher for the next couple months. In September the price broke lower out of a multi-month consolidation phase and sharp decline has brought the price back to support near 0.8632.

Since this region causes a reversal already this year, traders should consider the possibility that it could act as support again.

Figure 1. Australian Dollar Futures (6A) Daily Chart

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If already short from the early September breakout, consider utilizing a trailing stop or drawing in stops to $0.8844 or lower.

If not already in a position, the 0.8632 support isn't necessarily an entry price, rather it's an area where a trade could develop.

A trade setup occurs if the price consolidates near support, moving in a mostly sideways fashion for at least four to five days. After (and if) the price consolidates for a number of days, take a trade following a breakout of the consolidation in either direction.

The downside consolidation break is valid because it indicates a continuation of the longer-term downtrend.

The upside consolidation break is valid because it indicates a bounce based on support holding once again.

Place a stop loss just outside the opposite side of the consolidation from the breakout, should the consolidation develop and provide a trading opportunity. Set the stop as a trailing stop; given sharp recent movement the purpose of the consolidation breakout trade is only to capture a strong surge in movement following the consolidation near a key level.

 

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