Paper trade: Stopped out of USDCAD short @ 1.0640 for -67 pips, re-entering @ 1.0680
Well this was awful. USDCAD continued on a rampage upward and I was caught on the wrong side of the fence. Total loss for this was 0.12% of my account. At least I was light in it.
In retrospect, I broke my own rule and didn’t enter at one of the 4 fundamental entry points.
However, after some bear rampage throughout the markets today (Bloomberg: Stocks Plunge on Concern Rising Debt, Job Losses Threaten Global Recovery), USDCAD is at the top of my channel as shown in Figure 1 below. So while my previous entry was early. USDCAD at this price is a good short.
I will take it slow this time by setting a limit order below current support on the 4-hour at 1.0680, with a stop at 1.0750. And then adding a second chunk at 1.0640, my stopped out price. As is customarily lately, I am only risking 0.1% of my account on the initial order.
On a weekly chart, 1.0750 to 1.0810 is obviously a strong resistance for the USDCAD. It is a congestion zone in 2007 and 2008. Then USDCAD spent the last quarter of 2009 trying to break this resistance to no avail. But who knows, perhaps USDCAD has had enough and it will break this resistance decisively soon.
That’s why I’m only betting on this reversal with limited risk. It’s just a matter of wait and see now.
USDCAD, 4-hour
Paper trade: Short USD/CAD @ 1.0573, Stop 1.0640, Target 1.0415
Taking a first position in USD/CAD short here at 1.0573 on a 4-hour moving averages cross-over (Figure 1). I’ve also placed a limit order to add more at 1.0519 below Fibonacci support (shown in Figure 1). Reason for this trade is that USD/CAD is moving away from an upper bound channel with a overbought stochastic reading, as shown in the daily chart of Figure 2. I’ve also considered going long AUD/USD, but AUD/CAD trend remains bearish. So I chose to short USD/CAD instead.
Secondly, crude oil (and gold too) looks to be bouncing off an oversold level with a rapid move in 2 days from 72.43 to 77.39. Coincidentally, INO.com posted an intermediate term cyclical analysis video with a bullish outlook (affiliate link). They put out a better case than I do.
USD/CAD might make a short-term upward bounce here because of a short-term oversold condition. However, there’s evidently a lack of buyers in the past few hours (Fig. 1). The price has been sitting on support a bit too long in my view. Thus, I’m expecting it to break without a meaningful retracement (hence the short entry). A confirmation would be a break below 1.0530. Thus I have a limit order to short more below that price.
I am risking 0.1% of my account on this trade.
As you may have noticed, these charts are from Metatrader. I’m switching over to the MT4 platform as of today. Having played with its charting features for the past few hours, I’m quite satisfied with it so far. Although my needs are low as I was fine with the Oanda platform too (arguably the most simplistic platform out there).
USD/CAD, 4-hour
USD/CAD, daily
Paper trade: Closed AUDUSD short @ 0.9057 for +126, +26, -13 pips
My AUD/USD short from yesterday played out exactly as I planned. But I took profit a few pips earlier than I wanted because the bounce from 0.9025 fooled me. As you can see from Figure 1, AUD/USD is resting on 0.9000 support as I predicted. Now the million dollar question is, should I go long in this currency pair because of the super long term trend as I discussed in my previous post?
That brown support line in which AUD/USD is resting on now (Fig. 1) extends all the way back to April 2008. However, there’s also a nearby support at 0.8945 as shown on Gav’s Trading Blog. Since I don’t trade such a long term timeframe, I will be more conservative on this by watching how the price reacts in the short term at this 0.9000 level.
Gold also broke below 1100 but is holding above its own support around 1080-1090 too. Both markets are finding support at current prices. Let’s see how well they last.
I am flat in this pair until things are more clear to me.
On another note, this isn’t exactly a victory as I’ve been trying to short the Aussie for days. You would have been better flipping a coin in comparison to my success rate lately. I’ve lost more than I have gained on this move so far. In fact, I am still on handicap mode (half position size) as I’m still in a 3% drawdown as shown in my trading log. However, I am slowly crawling my way out with limited risk and profitable trades such as this.
AUD/USD, 3-hour
A change of wind for Australian dollar: Shorted AUDUSD @ 0.9183 and AUDCAD @ 0.9546
I have been barking up the short-Aussie-tree since the beginning of the year. See post #1, #2 on AUDJPY, and #3, #4 on AUDCAD for the long term analysis. (Also see my post on being early shorting the Aussie.) Anyway, now that AUDUSD has backed off the 9300 level with a bang, it seems that the trend reversal in the Aussie is getting clearer. Why do I say that? Notice the sequence of recent AUDUSD price action depicted in the daily chart of Figure 1.
- Breaking below lower long term trendline (thick brown line, Fig. 1) on Dec 14 followed by a 300 pips down move
- Reversing on Dec 22 at 8730 price level, right on the last long term support line
- Testing the same trendline in #1 from below and gliding along it since the new year
- Bouncing off the previous resistance at 0.9330
- A rapid breakdown right to the neckline support at 0.9100
Meanwhile, the breakdown of gold price (Fig. 2) is helping to keep the downward momentum in this currency pair.
Now that recent moves are confirming my long term Aussie short outlook as discussed previously (#1, #2, #3, #4), my plan is to stay on the short for the long haul.
My target on this dive for the AUDUSD is down to 0.9000 corresponding to the long term support line of #2 in that list above. Of course, prices don’t go one way. So remember to manage risks and be prepared for some probable counter-trend moves.
AUDUSD, daily chart
Gold futures (GC)
If you’ve been following my analysis, you’ll see that I’ve converted from shorting AUDJPY to shorting AUDUSD. The simple reason is that USDJPY looks to have bottomed out and is on a run upward. Thus, the US dollar has more potential strength than the yen to go long.
Lastly, as the title says, I also shorted AUDCAD at 0.9546 for the long term. See Figure 3. That short is playing out nicely as well with an amazing long term bearish setup.
AUDCAD, daily chart
Why I shorted CAD/JPY @ 88.57 instead of long USD/CAD @ 1.0251
CAD/JPY failed a major resistance level at 90 and has edged out an obvious intermediate-term downtrend (Fig 1). USD/CAD is also bouncing off a major support at 1.0200 (Fig. 2). And crude oil is below $80 on a slippery slope. As such, shorting loonie seems like a good move at the moment according to my FTC trading setup. Yet, here is why I am opting to short CAD/JPY and not long the more popular USD/CAD currency pair.
Figure 3 shows a 5-year, weekly chart of CAD/JPY (top) and USD/CAD (bottom). Evidently, the exchange rate of CAD/JPY is still in a depressed mode since the fall of September 2008. It’s also clear on this chart that why I say 90 is a major resistance level. Beside from being a nice round number, CAD/JPY has failed to break above 90 twice since August 2009.
As for USD/CAD, the picture isn’t as clear. 1.0200 is definitely a very strong support because it marks the top of a 6-month range in the first half of 2008. Yet, the downward slope in the long term since 2005 is not to be ignored. As such, I do not dare to bet on a bounce on this pair at this price.
Moreover, the intermediate-term move on both of these pair is giving us a confirmation. CAD/JPY is now testing a falling trendling (Fig. 1). Whereas USD/CAD is testing a falling support. Thus, I am shorting CAD/JPY under pressure. Going long on USD/CAD now would be like betting it to bounce on a slippery slope.
CAD/JPY, 3-hour
USD/CAD, 3-hour
CAD/JPY and USD/CAD, weekly chart
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