Counter trend trade below BIG support area, high confluence zone

Since the beginning of May AUDUSD has been dropping almost vertically about 800+ pips.  On the most recent down leg, after seeing a pullback wave up to the .618 level I drew a few Fibonacci expansion points using a couple of different levels.  This presented an excellent reversal entry zone to trade up, counter trend.

Intraday price moved below the strong support of .95821 however price stalled at a couple Fibonacci extensions levels.  I drew a Fib inversion from C to B and back up to C plus an fib extension of A to B then back up to A.  Using both extension and inversion created a confluence area of a possible rally up.

Confluence zone counter trend trade
Confluence zone for counter trend trade & Structure break entry
  • The were several entry areas.  The aggressive low risk entry was the 1.618 inversion of the C-B points as priced rally sharply from there.  The 1.618 was just above the A-B extension point of 1.414
  • On the Hourly chart there was a loose 3-drive step down to get to the 1.618 inversion.
  • Another possibly more safe entry could have been the open after the hourly bar closed which touched the 1.618 level.
  • Another entry would have been to wait for recent structure levels to be broken (closed above) then look for an ideal entry.  This is safe but presented a bigger stop value as stops would need to go below the days lowest low, about 65 pips away.
  • Target would be a .618 retrace of the recent down leg.

NOTES

  • I identified and drew the possible reversal zones around 5pm EST.  Therefore, it took 9 one-hour bars before the lowest low was reached.  Further, once price moved into the fib extension regions, below 1.272 level, it took 7 one-hour bars before the 1.618 level was touched.
  • This is important to know, when trading live as Forex trading is all about waiting and knowing what is going on.  The key is patience, focus and discipline.
  • This is easy after the fact but, live, the .382 level look liked a good resistance level as it was aligned with a former support area, point B.
  • It is important to see that the structure level was taken out on the 4am EST bar, it closed above the previous 8 one-hour bar highs.
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