Forex Trade Idea: 2014-03-17
Taking a swing short on CAD/JPY to play the recent downtrend. Will forex traders continue to press the trend lower?
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I decided to go with this simple Fibonacci setup on CAD/JPY to start the week. The pair has been in sell mode, sparked by a combination of fears that China is slowing down and on geopolitical fears that the situation in Crimea may spark into a war between the West and Russia. Predicting whether either will turn around (or that the focus will shift to something new) is nearly impossible at this point, but I think it’s a good probability trade to go with the current trend.
The risks to this trade is that there are Canadian economic reports this week, most notably the manufacturing sales report tomorrow. Also, BOJ Governor Kuroda will be giving a couple of speeches this week, and traders will be on the lookout for dovish rhetoric now that the Japanese Yen has gotten much stronger in the past few weeks (a stronger yen can hurt Japan’s recovery).
For now, I’m going with the trend lower, with a volatility stop of the daily average true range (ATR), and using the Fibonacci extension tool, targeting the 100% Fib extension. Here’s what I am doing:
Short at market half position CAD/JPY (91.90), stop at 92.80, profit target at 90.50
I’m only risking 0.50% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 1.55:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!