Forex Adjustment: NZD/CAD Long

Yesterday’s oil rally lifted the Loonie in the Thursday forex session, creating what may be an opportunity to maximize my gains in my NZD/CAD long position.

Original Trade Idea: Forex Trade: Long NZD/CAD on Pullback

NZD/CAD 4 Hour Forex Chart

NZD/CAD 4 Hour Forex Chart

The airstrikes in Yemen sparked a nice rally in oil during the Thursday Asia and London session, and as usual, a rally in oil does support the Canadian dollar. The Loonie rallied on the session, taking NZD/CAD down from the strong resistance seen around .9600.  As with most geopolitical news related to war and oil, I think this is a short-lived reaction in oil, and will likely return to its weak sentiment. So, I think this pullback in NZD/CAD is an opportunity to get into a bigger position and maximize my gains, but with the chart changing a little bit since I first got into this trade I’ll also reduce my locked in gains.

Looking at the four hour chart above of NZD/CAD, I drew another Fibonacci retracement tool to try to pinpoint new potential support levels in this pullback, and I see that the 61% Fib almost lines up perfectly with my current stop at .9430 adjusted in my last update.  Also, the moving averages are trading right around the psychologically significant level of .9400, so there is potential for support between there at .9400 to .9450.

To compensate and give my trade a higher probability of success to stay with the trend if it holds, I’ve decided to drop my full position stop to .9390. This reduces the locked in profit by 40 pips to a locked in +190 pips on a half position.

I’m also looking to increase my max reward by adding on a pullback to the new potential support area. To not eat too much into my gains, I’m adding only a quarter position with the same position stop so I still have a locked in (but smaller) profit, but I’m increasing my potential reward by 50% moving into a larger position.  Here’s what I’m doing:

Buy quarter position NZD/CAD at .9450, full position stop at .9390, no take profit target at this time. 

If my new long is triggered and I’m stopped out then my gain on the trade is +0.46% (including the first closed half position adjustment) vs. the +0.70% previously locked in.  But again, I’m opening myself to a bigger reward, especially when you include the positive carry interest I’m collecting on a bigger position. So, I’ll let this trade ride for now and see if the pullback is just a temporary reaction to geopolitical news or if the rally may be done for now in the short-term…stay tuned!