Forex Trading: NZD/USD

This is a weekly chart of NZD/USD where an ascending triangle is clearly visible. Ascending triangles usually break higher, rather then lower, because the offers holding price action down eventually get overwhelmed after being tested several times. Here's an example - when price gets rejected for the 2nd time at a level and pushed down, offers begin to build up at that level. When price is trading at say, .8200, and there are very few sellers below .8450-.8475 (where offers are clustered), there's no point in selling at the current level for a longer term trade because price isn't likely to go lower since most of the large traders who want to sell have their offers 250 pips higher then where price currently is. The lack of sellers causes the price to be bid up, until price arrives back at the horizontal line of the ascending triangle and meets the offers (resistance).

(Note: if the price is going up, it's unwise to assume it's due to increased buying power. It may just be a lack of sellers. I know it sounds like a technicality, but it's important to recognize the difference.)

Here we have a Daily chart, where I have outlined a series of higher lows, which signify an uptrend. Note that this triangle on the weekly chart has been compressed into a very small range. A breakout of the triangle is imminent. A breakout to the upside is likely; but we believe there's a chance this could be a false break due to the overbought conditions of equity markets around the world. False breaks typically look like normal breakouts, but they typically just serve to flush out the stops of everyone who was short the pair and to get a lot of "buy stop" orders triggered. Once that is accomplished, price usually rips in the other direction. The key to trading a breakout without getting hurt by false breaks is to get long entries in good places and to get a stop-loss in front of that entry as soon as reasonably possible.

Below is the 60 minute chart with some notations. This is a particularly strong uptrend on the hourly chart driven by fundamental news flow. Absent some highly compelling fundamental reasons to short this pair, the dips should be bought and played for a break of the ascending triangle on the weekly chart.