NZDUSD Short trade setup, get ready to trade the 5th wave

NZDUSD short trade set up – we have been waiting for this trade for some time now. If you did not read the earlier post about the wave count and expectation of a NZDUSD short trade, you might want to read – How to trade using Elliott Waves.

The correction did not end last week. So we are still within the corrective structure, still looking for that short set up. In order to get in early on the trade, the one thing we need is a completion of the corrective structure. We looked at two different counts of the overall correction. But it’s still not 100% clear as to what sort of a pattern we would end up with. None the less, we are looking for short set ups on this pair, and we might have one already.

But before that lets take a look at some possible scenarios.

NZDUSD short set up - possible scenarios

Our initial expectation of a triangle is marked in green. But looking the chart now, it seems there are two more possibilities of how this corrective structure might develop. Both possibilities are marked in yellow and red . But remember we are looking for the overall downward fifth wave. So even if these alternate structures start to develop, I am certainly not interested in long positions at the moment.

NZDUSD Short trade and presumably completed triangle (green)

If this was the case, we already have the wave 1 of lower degree (of the 5th wave) completed. In this perspective, the current bullish move is wave 2 of the lower degree and we are at the start of wave 3. Expectation here is for this 5 wave structure of the lower degree will ultimately develop to be the wave 5 that we are waiting for. If that is the case, there is no better place to enter the trade than the current price zone.

NZDUSD short trade set up - possible 3rd wave of lower degree

Do you see what I see? This is the NZDUSD short trade set up.

Thus far we have discussed about 3 possible scenarios. However, there is another possible scenario where the correction may continue in the direction of our anticipation. There is a possibility for a double three WXY wave combo to play out as well. Here it is marked in Orange.

NZDUSD short trade set up - possible double three wave combo

So, all in all we have 4 scenarios, 2 bullish and 2 bearish. Since I am barely interested in longs at this moment and price is at a crucial point – seemingly at the end of an exhausted move up; I would be confident in taking a trade short.

Trade plan for this NZDUSD short trade

My trade plan for this is simple. Enter short with any type of correction in lower time frames. Remember the last bear candle consists of price action of one whole day. So it’s a significant bearish wave in lower time frames, hence the reason to wait for a correction to enter the trade.

The stop-loss will go just above the last lower high of the daily chart. If price wants to keep pushing up, obviously the trade will be stopped out. If price wants to move in the direction of our anticipation, then the personality of the wave will give us clues about the overall wave structure. Then at that point we can determine or at least rule out some of the scenarios off our forecast.

If you happened to be in a NZDUSD short trade in the next few days and you see an impulsive bearish move; make sure you reduce or eliminate risk off the trade and let it run the whole distance.

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