Looking at a bearish situation on the EURNZD crosspair, on the daily timeframe. The market has recently experience a huge bullish rally which pushed prices up wards non-stop over the span of 2 weeks.
The aggressive movement has now cause price to ‘gap’ away from the mean value. When these gaps are severe and price is trading at an extreme distance from the mean. Then we can anticipate a correction back to the mean will most likely take place soon.
We are looking at the upper tails created on the last daily candle, and today’s open candle which is demonstrating any further moves higher have been rejected. This is a good sign of bullish exhaustion and as created a good opportunity for a mean reversion trade.
If the market breaks below the previous day low it will trigger a bearish breakout trap & reverse trade, and will most likely fuel an aggressive sell off.
Trade Progress Update
Last session we were looking at a bearish rejection occurring at extreme prices from the mean value. The large gap between the mean and price are good conditions for mean reversion trade setups.
As you can see the market has corrected back to to mean quite aggressively. This is typical of mean reversion trades, the ‘snap back’ is generally quite harsh and can drive trade into profit quickly.
The market is now tests a key support level, we are watching for any signs of bullish price action here for signs that the level will hold. If a bullish signal does manifest here we can consider taking profit. If support doesn’t hold then there is plenty of room for the market to move down even further. With such an aggressive bearish power candle last session there is a good chance the bearish momentum will continue.