Chart of the Day: The Waiting Game

[DailyFx]

The previous three days we posted three different charts of three different currency pairs that are in the same situation.

The AUD/CAD, NZD/JPY and the AUD/JPY all show a downtrend on the daily chart and have rallied up to a potential resistance level on the 4-hour chart. This is a classic selling opportunity as we want to always trade in the direction of the trend as seen on the daily chart. If one of these pairs starts to move down again, it is likely that all three will move down together. Even though they are different pairs, the moves in the FX markets are related. So instead of opening three different trades and increasing your risk, the better play is to open smaller positions on these pairs and treat all three trades as one trade. If you normally would risk $300 on a trade, then only risk $100 on each trade to keep your total risk at that $300 level. Selling all three pairs and opening big positions on each is not really diversifying, but rather just loading up on one move. This is just too risky as all three are likely to win or lose together. Some traders will just sell the weakest and if buying, buy the strongest. The weakest of the three appears to be the AUD/CAD and since that is also the pair with the lowest rollover amount to be paid, might be the best pair to trade of the three. The situation is unique with each opportunity, but taking a look at the big picture does bring some clarity into the equation.