NZD/USD Price Analysis: Bearish environment opens 1:3 R/R setup

This is part of a series of developing trading stories.

We turn over to another chapter of the NZD/USD price analysis whereby we have seen two of the targets achieved on both the downside and now the upside opening prospects for a short setup.

Following on from yesterday’s article, NZD/USD Price Analysis: Bears giving way to the bulls until 0.6710/20 resistance, the price has reached the target and is now moving into a bearish environment, in tune with our overall bearish forecast for the completion of a reverse Head & Shoulders on the monthly chart:

Obviously, we wish to manage our risk and not simply sell NZD/USD all the way to what we predict will be the bottom of the right-hand shoulder of the H&S pattern.

Instead, the playbook is to take what we can out of the market on the way there and react to price fluctuations, rather than predict them.

The job of a trader is to first manage the risk and increase the balance by trading price action, reacting to it but being prepared for high probable outcomes by reading the market structure. 

Bearish setup

Now that the price has been rejected by the predicted resistance level, if we recall we identified the levels as follows:

Source: (NZD/USD Price Analysis: Bears giving way to the bulls until 0.6710/20 resistance)

Ultimately, the prior bullish closing, marked in purple, (the only green candle in the downtrend) will offer ultimate resistance and this is where bears will be monitoring for short setups. 

Well, guess what folks?

Bears can now take aim for a sub 0.66 target, but it would be prudent to wait for a favourable risk to reward scenario of at least 1:3.

The price was heavily rejected from the resistance area, but there is still a layer of resistance that is yet to be fully tested again which opens the opportunity of a sell limit at 0.6680.

In doing so, this offers a 1:3 Risk to reward setup as follows: