Whoops, looks like I missed another trade as price failed to go all the way up to my desired entry point! The 38.2% Fibonacci retracement level held quite well, as risk appetite remained strong. Since everything is clearer in hindsight, I know now that I should’ve entered right away, especially since a bunch of tired candles (indicating that buyers were running out of steam) formed right smack at the 38.2% Fibonacci retracement level.
What’s up my forex friends? I’m still pretty bummed out about my USDCHF trade which got stopped out yesterday. That’s almost a day’s worth of tips down the drain! Anyway, I decided that it wouldn’t do me any good to wallow in frustration so I’ll shake off the negative vibes by coming up with a new (and hopefully better) trade idea.
Overall, it seems like the CAD has been bullish this whole week. Yesterday could merely have been a correction on some profit taking on USD shorts. Perhaps the USD selloff would resume today…
Looking at the economic calendar, there are some reports that could have a deep impact on sentiment. During the European session, we got some GDP data from the euro zone. It is expected to show that the euro zone as a whole posted growth. This could perk up sentiment, which would boost higher yielding assets like the CAD.
Come the US session, we’ve got trade data from Canada at 1:30 pm GMT. The trade deficit is expected to shrink to 1.6 billion CAD, down from 2.0 billion CAD in September. A decline in the deficit would signal that exports have risen in the past month, which would indicate that Canadian exports are improving.
After trending lower for the past few days, the USDCAD pulled back yesterday as risk aversion revisited the markets. The pair has climbed up to the 38.2% Fibonacci retracement level but I feel that it could still retrace up to the 50% level, which is neatly in line with support turned resistance at the psychological 1.0600 handle. This also coincides with the previous week’s low. Also, the stochastics are lingering in the overbought region, signaling that buyers are losing steam. Traders could be waiting to jump in on the downtrend at a better price – just like I am.
According to my analysis, if my entry order at 1.0600 is reached, the pair has moved 39 pips from its Asian open price. Since, the pair moves 134 pips on average per day, it still could move 95 pips more upwards before the buyers become exhausted. Given this, I will place my stop 100 pips away at 1.0700 to give my trade some breathing room.
Here’s what I will do:
Short at 1.0600, profit target at 1.0420, stop at 1.0700.
As usual, I will adjust my position size to make sure I risk only 1% of my account.
Oh, by the way, I’ve also started to dedicate more time to perfecting my HLHB mechanical system. The first thing I’m going to do is back test my system using around three years worth of data starting October, 2006. I will be reporting the results of my tests soon so watch out for that!