Top Trade Idea For December 1st, 2014 – USD/NOK
A few weeks ago, we wrote an article recommending a trade to buy USD/NOK (Norwegian Krone) soon after it had fallen from 6.93 to 6.71 (see http://www.forexnews.com/blog/2014/11/10/top-trade-idea-november-10th-2014-usdnok). At the time, USD/NOK was around 6.75 and our long trade targeted 6.96 (Friday’s close was above 7.00). We feel there’s a little more upside to USD/NOK and feel we’re overdue a significant pullback, so this article will recommend another USD/NOK long trade. If this trade triggers, it should take much less time to complete than the previous trade targeting 6.96.
This four-hourly USD/NOK chart shows the nature of the sharp rise from the mid November low of 6.7160. The chart also includes our Elliott Wave count from that low. If this count is correct, it suggests we’re working through wave ‘blue (iv)’ correction which should either be a running triangle or an expanded flat. For this article, we’ll assume an expanded flat. If we’ve seen the end of the b-wave at 7.0589, we’d expect the final leg of wave ‘blue (iv)’ to move lower and find support between 6.8950-6.9400. This will help determine our entry for the follow up trade.
The next important issue to assess is whether 7.0589 is the end of the move higher from 6.71. While we can’t be sure, our Elliott wave analysis doesn’t count five completed waves from the 6.71 low, so we expect at least one more move higher. Had we counted a possible five waves higher, we’d avoid buying USD/NOK. In expectation of another move higher above 7.0589, we’ll set a conservative trade target near 7.07.
Therefore, we’re looking to buy USD/NOK at or below 6.9500 (above the earlier nominated support zone). Our stop will be 6.8600 and our target will be 7.0600. This setup looks to risk 900 NOK pips (about 130 EUR/USD pips) to make 1100 pips with a risk/reward of 1.22. However, if price moves to 7.07 or higher before reaching our entry at 6.95, abandon this trade setup. Further, we mentioned earlier this correction may be a triangle. If that occurs, this entry also won’t be triggered as price would move to 7.07 or higher before reaching our entry.
Long Setup for USD/NOK
- Trade: Buy at (or below) 6.9500.
- Stop Loss: Place the stop at 6.8600.
- Take Profit: The ‘take profit’ level is 7.0600.
- Trade Management: If price moves to 7.07 or higher without triggering the entry, cancel all orders.
Our November USD/NOK article recommended a buy level between 6.75-6.80 and a target at 6.96. The risk/reward on that trade was as high as 2.50 depending on the entry (price was near 6.75 at the time of writing). We also recommended a similar trade for TradingAnalysis.com clients but their entry was 6.7455 with a tighter stop of 6.7155. While risking 300 NOK pips, their three their targets were 6.8805, 6.9705 and 6.9855 with risk/reward of 4.50, 7.50 and 8.00 respectively (average risk/reward 6.67). This means $1,000 risked on this trade produced a profit of $6,667. We mention this to point out that an average risk/reward of 6.67 is an unusually high risk/reward trade.
About Todd Gordon Founder – TradingAnalysis.com
Todd Gordon is the Founder of TradingAnalysis.com, and a cast member of CNBC’s Money in Motion. TradingAnalysis.com provides actionable market analysis and clear trading strategies in the currency, commodity, and equity markets for the amateur and professional trader alike. Most recently, Todd served as managing partner for 2 ½ years at Aspen Trading Group , a trading and research company focused in the foreign exchange markets. Prior to that he served a 6 year stint as the Sr. Technical Strategist for FOREX.com, while at the same time trading for GAIN Capital Asset Management, the parent company of FOREX.com. The fund specialized in trading in the G-10 currency markets and managed over $25 million.
Valued as one of the most respected Elliott Wave practitioners in the industry, his international following comes from his ability to translate the wave theory into clear and concise trade strategies. His highly enthusiastic, easy-to-understand presentation style and TV presence has sent him to regions including the Middle East, Europe, Asia, Australia, and the US, and appeared on CNBC, Bloomberg, Sky News, BNN, and Fox news . His research clients value his clear and concise analysis as he preaches, and demonstrates, discipline by consistently applying the written analysis to trading in his personal accounts. Todd lives by the mantra Plan Your Trade, Trade Your Plan.