After an explosive move upwards, the GBPNZD chart is now looking very ‘over extended’ from the mean value. Typically when you get a large gap between price and the mean, the probabilities suggest a mean reversion is likely to occur. The market is already showing signs that it is looking ‘top heavy’ and potentially gearing up to move back toward the mean and ‘fill the gap’.
Last session a bearish Inside Day printed as price stalled and churned around at these extreme prices. If the GBPNZD market manages to break the low of the signal candle, then we could definitely see a nice bearish move develop off here. Will be watching the marked weekly level for any price action exit signs, but I believe if the bearish momentum picks up that level won’t hold.
Inside Day Breaks Out & Fills Mean Gap
Last week I posted a trade idea on the GBPNZD daily chart. The market was very overextended from it’s mean value, which sets the market up nicely for mean reversions.
The Inside Day allowed us price action traders to build the framework for a bearish breakout trade – using sell stops to catch bearish breakout momentum. The trade triggered that session, but was hesitant to move lower. The mean reversion move came the next day – it was quite an aggressive sell off.
This trade is still in it’s early days I believe – traders can look to take profits if the trade has already reached a desired risk reward – but the daily chart is continueing print further bearish price action signals, suggesting further weakness to come.
The next price level to watch is the weekly support level marked on the daily chart above. If this level breaks, it’s going to be a killing field for the bears. If it holds we will need a very strong price action buy signal before considering going long.