Even with the Veteran’s Day holiday, there were still opportunities for great setups leading to small winners in the Forex marketplace today. One such pair that saw a classic setup was the AUDUSD.
At Tradesight, we like to look for combinations of key technical tools creating a confluence of events that lead to high-probability play. We use the Average Daily Range tool to determine the extension point that is often a pause or reversal point for a pair. For example, the AUDUSD trades 134 pips per day, based on the average range of the last six months. That means that once the high to low of the day reaches 134 pips across, you often get a pause or reversal.
Another tool that we use is our Seeker tool, which seeks out 9-bar extension criteria using a special counting technique. Often, once a forex pair, futures contract, or stock reaches the ninth bar of the count, it is extended and needs a relief move in the other direction.
When you combine the Average Daily Range concept with the Seeker tool, if you can get them to line-up, it gives you a high-probability entry. So let’s look at the AUDUSD in 5-minute bars over the last 24 hours.
Notice the spike at A on news that set the high of the session. The dashed green line anchors to that high as the Average Daily Range high of the day. That then causes the dashed red line to draw 134 pips lower, which gives us a potential exhaustion point based on the range. If the AUDUSD can hit that line, it will often make some sort of move back the other direction.
It does eventually hit that line at B, which is also a 9-bar move down from the Seeker tool (note the green count below the candles). This also represents a shot at reversal.
Going long off of that level based on the combination of the ADR and the Seeker led to a move higher, as we would expect. In addition, with the Holiday, it is even less likely that the AUDUSD could have moved further than the ADR.