How to trade seasonal patterns in Forex, today: NZD/USD

  • master
  • 01.05.2019
  • Comments Off on How to trade seasonal patterns in Forex, today: NZD/USD
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Equities seem to be enjoying a very positive first quarter in 2019, and based on the usual positive correlation between the Kiwi dollar and equities, one would expect to see the NZD trading significantly stronger on a broad front.
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Interestingly enough, since January 1, the NZD is strong against the Euro, JPY, and CHF while trading low against the USD, CAD, GBP and AUD.
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But particularly against the USD, the weakness could be further extended in the coming few days thanks to a bearish seasonal pattern in the NZD/USD in the time span between May 2 – 23.
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</p><h2>Seasonal Pattern in the NZD/USD</h2><p>
The key parameter of this seasonal bearish pattern, appearing as follows: between May 2 – 23, for the past 24 years, the NZD/USD saw an average drop of 211 pips across 18 of those years, and rose (‘lost’) on average 102 pips over the remaining six, while the maximum loss was 173 pips.
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</p><h2>How to Trade The NZD/USD Seasonal Pattern</h2><p>
But now the interesting question:
<strong> how could we trade this</strong>?
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We want to use the following plan:
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<li>After the identification of the profitable seasonal window, we want to sell the market on the closing price of the starting date on May 2 (21:59 CET).</li>
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<li>Identify the maximum loss within the seasonal period. Then, have a look at the daily chart and the indicator ATR(14). <br>
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If the maximum loss is above the ATR(14) reading, round it up to the next round number and use it as worst-case-stop.
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If the maximum loss is below the ATR(14) reading, use the ATR(14) as your stop-width (rounded up to the next round number).
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Since the ATR(14) in the NZD/USD is, on a daily time frame, is currently trading between 30 to 40 pips, we want to use the maximum loss of the window of 173 pips as our worst-case stop which we place accordingly based on our entry price.
</li>
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<li>Look at the average gain of the seasonal pattern. Place the take profit away this average gain from your entry point. <br>
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The average gain of the seasonal pattern is 211 pips within this period. So, after entering the trade on the closing price of May 2, we subtract those 211 pips from it to get our Take Profit level.
</li>
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<li>If the trade is not stopped out as such, it does not reach its take profit within the seasonal period – end the trade market on the closing price on May 23. </li>
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<a href=”https://admiralmarkets.com/analytics/traders-blog/seasonal-nzdusd-pattern”><img style=”width:auto;” class=”img-responsive” src=”https://fxmedia.s3.amazonaws.com/articles/remote/b9d361ed78776a5a993e3b93fdee39f8.png”></a>
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<em>Source: Admiral Markets </em><a href=”https://admiralmarkets.com/trading-platforms/metatrader-5″><em>MT5 </em></a><em>with </em><a href=”https://admiralmarkets.com/trading-platforms/metatrader-se”><em>MT5-SE </em></a><em>Add-on NZD/USD Daily chart (between September 10, 2018 to April 26, 2019). Accessed: April 26, 2019, at 1:30pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.</em>
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In 2014, the value of the NZD/USD decreased by 5.1%, in 2015, it decreased by 12.5%, in 2016 it increased by 1.4%, in 2017 it increased by 2.1%, in 2018 it decreased by 5.2%, meaning that after five years, it was down by 18.3%.
</p><p>
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