Cross-Eyeing: Bearish Flag on EUR/CAD? – Trade Invalidated

Trade Idea Invalidated: 2010-12-17 1:50

EUR/CAD 1-hour Chart

It looks like a new low wasn’t meant to be! EUR/CAD has moved up higher, which pretty much invalidates my trade idea.

We didn’t see as strong a move yesterday as we have seen throughout the week. Higher yielding currencies like the euro remained steady on increased risk appetite. And now, it looks like the euro is revving up across the board! I guess a new low wasn’t meant to be!

So, no trade for me, but a cancelled trade is much better than a losing trade right?

Check in next week to see if I can squeeze in one more trade before the Christmas holidays!

Trade Idea: 2010-12-16 2:50

EUR/CAD 1-hour Chart

If I’m gonna be hopping on the bandwagon by selling the euro, I might as well do it against a strong currency, right? Well, yesterday’s price action suggested that the CAD is the top dog as of the moment, so I’m looking to short EUR/CAD. CAD was the only currency that was able to outperform the USD, with help from an upbeat October manufacturing sales figure.

As for the euro… Well, we’ve been watching it get pummeled by the European debt crisis, and it’s hard to say that the selloff is overdone. Every time the issue seems to die down, a new problem pops up. Take yesterday for example. The euro took a massive hit after Moody’s warned of a possible credit rating downgrade for Spain.

Today, we have another potential catalyst for a strong move down for the euro as Spain is scheduled to hold a bond auction. In the past, Span has been able to successfully auction off its debt, so I think that if the auction isn’t able to meet expectations this time around, the markets may react more violently. And of course, the low liquidity we’ve been seeing lately may also magnify any market moves.

On the technical side, I spot a nice bearish flag forming on the 1-hour chart. This is a simple technical play, as I’ll be looking to short just below the support line at 1.3245. I’ll be placing a rather tight stop of just 40 pips, since I’m going for a breakout anyway.

The one thing that concerns me is the December low at around 1.3210. This might prove to be a strong support level, as it was the latest swing low.

Because of the support line, I’m going to play this trade a little different. I’ll be shorting half a position at 1.3245, while adding another half position at 1.3190 when price breaks the December low. Take note that I will be keeping a total risk of 1% even when I add to my position. I will only move my stop to break even once price has moved a number of pips equal to the risk of the averaged position.

As for my profit target, similar to Pipcrawler’s trade, I’ll be looking to add to this trade, and go for a home run. I will keep my eye out for the support level at 1.3080 though. If price struggles to break through that, I may have to consider closing early.

Again, here’s my gameplan:

Short EUR/CAD one half position at 1.3245, add another half position at 1.3190, stop loss at 1.3280.

If price continues to surge lower, I will look to add one half positions along the way, while moving my stop accordingly and controlling my risk.

Yes, I know that this seems a ittle bold, but hey, gotta risk it to get the bunny right? All it takes is one strong move down for me to get in a potentially massive down move. If the pair touches the September lows around 1.3080, I would stand to gain more than two times my original risk. What more if this reaches all the way down to the 2010 lows at 1.2500?

Let’s see if this sucker can hit the 2010 lows at 1.2500!