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How the Markets React When They Reach the Maximum Capacity


On August 28th 2016, I published an article on The Markets’ Maximum Capacity and focused on NZD/CAD market’s reaction to the 0.9776 and 0.9574 resistance levels. Please read it here: The Markets’ Maximum Capacity

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NZD/CAD has been struggling below and sometimes around the 0.9776 and 0.9574 resistance levels since that article was published.

Something is going on NZD/CAD monthly chart, is not just a small price reversal. It seems the whole economy of both countries wants to reverse.

NZD has been going up against CAD since 2009.02.01. There is a continuous and strong uptrend formed on the monthly chart (below). There were thousands of parties that have been working under the shadow of this market (economic condition), and have been making money and profit with it for several years.

Many of them know nothing about what is happening on NZD/CAD monthly chart. What they know is that they want to keep their businesses up and running and make more profit. But the question is whether the New Zealand and Canada economy allow them to do that.

I am not saying there is another party which is against the other parties to keep on working and making money. It is just the economy capacity which is limited and has to be reversed somehow.

To keep on making money under such a condition, the business owners have to make some changes, otherwise they won’t be able to survive.

The price of a commodity, be it a currency, a metal, and… can’t keep on going up forever. It will reverse finally.

How and why?

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Let’s say Canadians invest in New Zealand in different markets like the real estate. To do that, they have to convert their own currency (CAD) to New Zealand dollar (NZD).

Canadians have been happy with their investments and economic activities in New Zealand during all these years and they have been making reasonable profit.

However, the NZD price also has been going up against CAD because it was the Canadians who kept on buying NZD against CAD and the other currencies they probably had. The higher the NZD price went, the harder it became for the Canadians to keep on investing in New Zealand.

In spite of this, there are always strong investors who kept on doing what they had been doing during all these years, and they made the NZD price go higher and higher.

At a certain level, New Zealand central bank will have to decide to stop this uptrend because (1) it does know that this process can stop the investors from investing more in their country, and (2) an expensive currency causes inflammation in different markets including real estate and it can cause a lot of discomfort for those of their own people who have been waiting for the prices to become stable to buy a house or a commercial property.

Based on the economic scales that the governments have, the currency price reaches to such a level exactly where the NZD/CAD has reached which is around the 0.9776 and 0.9574 resistance levels.

Still many of the investors aren’t realized and try to invest more. That is why last month NZD/CAD attached the 0.9776 and 0.9574 resistance levels very strongly.

The NZD/CAD will keep on going up if one of the New Zealand and Canada or both, change their policy and do something different than what they have been doing since 1997 and before (see the below chart).

What I explained above is not a prediction. It is just the description of the an ordinary economic process.

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On the monthly chart, NZD/CAD is forming a strong short trade setup now.

Are we going to have a 100 score short trade setup if the current month’s candlestick closes with a strong bearish body?

NZD/CAD Monthly Time Frame

Good luck 🙂

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LuckScout
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"Whether you think you can, or you think you cannot, you are right." - Henry Ford

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8 thoughts on “How the Markets React When They Reach the Maximum Capacity
  1. Thank you Chris. Your analyses have given me more confidence on my short position on AUDCAD, over 300 pips now.

  2. Ben Aqiba Ben Aqiba says:

    Hi Chris,

    great article.
    We have learned a lot of new things based on NZDCAD monthly chart.
    For example: The rule “If the price keeps on testing/retesting a line for over three times, usually the line will be broken”, we can not apply when we have too strong weekly or monthly level on the way.
    You where correct that the price will failed to break above too strong resistance level, because it did not happen anything special in the economy of New Zealand,to push the price above that level.
    If the price closed with strong Bearish body , I think formed setup will be 100 scored setup,because the shooting star candlestick is strongly tested resistance level, and failed to break above.And than, next candlestick is closed with Bearish body which means the Bears are taken the control.
    But the most important thing is strong resistance level, which can negate all candlesticks weakness.
    So, the price is going down because of central bank intervention ?

    Thank you.
    You are the best 🙂

    • LuckScout LuckScout says:

      Hi Ben,

      Thank you.

      > So, the price is going down because of central bank intervention?

      They haven’t done anything yet, but they will if the price doesn’t go down. They cannot allow it to keep on going up forever.

  3. Khaled W. Khaled W. says:

    Hi Chris
    I had short position at .9816 after the election day and I got out of that position at .9460. I closed all my positions at that time. Hoped I remained partiall of them opened. For the monthly charts it sounds very strong setup As the Oil gained more power after OPEC agrremnt , which gives CAD more power and FED hike that made USD Bullish so far and put pressure on NZD and AUD as they are correlated with gold.
    So the problities speeks it self. But If I want to re-enter in this setup I hope there can be a good retercment. What is your veiews for good entery ? and what is your thouhgt about USDCHF ?

    • Ben Aqiba Ben Aqiba says:

      Hi Khaled,

      I will try to answer on your question instead of Chris. Actually it is one answer on similar question from the past.

      “I run away from having too many rules in my trading strategy. I always keep it dead easy, and I think this is one of the most important reasons of my success during the past several years.

      That is why I have no answer when people ask questions that make the trading too complicated.

      I wait for a too strong setup on the daily, weekly and monthly time frames, take my position, set the stop loss and target and I am done. I don’t care about anything else.”

  4. James NM James NM says:

    It will be a strong 100% setup on monthly time frame because of the reasons you have explained above

  5. having the right fundamentals side by side to chart analysis, give confident in trading and more depth for take profits.

    thank you for sharing dear Sir.

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