Have you ever wonder ed why short positions are called short? The answer is very simple ; it’s because the trend of a short tends to be quicker than that of a long. True , in Forex , that is not always the case but the idea or theory behind it is that panic selling is faster than buying and as such creates large movements over a short time span. Why is that so interesting? Because today we focus on a trader from Portugal who put that theory into practice by taking a ride on the collapse of the New Zealand Dollar with jaw dropping results. What exactly happened to the Kiwi and how did Hugo Vital cash in on it? Th e answers to those two questions are exactly what we are going to look at today.
Kiwi Hit Hard
Once upon a time, not too long ago, the New Zealand Dollar was the super star of the FX world, but over the past month or so, the Kiwi seems to have hit a brick wall because it is now in the midst of a major slump. The reasons for that seem to be many; a too strong Kiwi Dollar, a bubble building up in the New Zealand real estate market, falling dairy prices, etc. But the primary reason was that the Reserve Bank of New Zealand was committed to bringing the Kiwi Dollar’s value lower because the too strong Kiwi wasn’t good for New Zealand’s economy. In only slightly more than a month’s time, the NZD/USD has lost about 4.5%. Though the central bank had raised the cash rate four times this year, it recently announced that it wanted to take time and measure the economic impact of those increases, but FX traders are selling off the Kiwi because they are suspicious that the RBNZ might not be willing to sit tight if the Kiwi Dollar once again starts to climb higher.
Kiwi Collapse Hugo Gains
It ’ s hard to know whether Hugo focused on any fundamental weakness or only the technical picture ; regardless, the technical picture has been most striking. As seen in the chart , after the NZD/ USD pair failed to hold above 0.88 , a big multi - week double top pattern was created. What is a double top? As seen in the arrows, it generates sort of an M shape that basically says that the pair has topped out and could face a strong correction. And , indeed , that is what happen ed; the NZD/USD collapse d by a whopping 422 pips from its top above 0.88. And Hugo? Hugo open ed his short NZD/USD close to the top at 0.8777 and just waited for market forces to do its work. After around 2-2.5 weeks , Hugo Vital gained 219 pips, closing his position at 0.8558, just before the risk of a rebound in the pair surfaced. The gain for this position , percent age- wise , was an incredible 54.75%! So what can we learn from this? That double top patterns , at times , can predict very fast and furious corrections or shorts trends that could be highly lucrative. Of course that being said, every investor should remember that each ...
↧