Forex Trade Idea: 2014-10-09
The Kiwi has been getting beaten down for months, which makes it an attractive buy on a good looking technical setup in NZD/CAD.
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NZD/CAD has been on a long-term forex trend higher for years, peaking around .9600 at the beginning of the year. Since then, it’s been a steady ride lower, partly on profit taking after the RBNZ raised interest rates this year and partly on the global weakness starting to creep up in recent weakness, and the massive sell of commodities on global weakness concerns. The pair has pulled back to an area with a couple of technical arguments for potential support:
- Broken resistance-turned-support around .8800
- Fibonacci retracement level
- Stochastic has correlated to previous market bottoms in the past
One further technical argument is that the market is approaching the 200 moving average (not drawn on the chart), which could serve as dynamic support. I’ve already decided to go long at market, with a pretty wide stop of two weekly ATR. My target for this technical trade is the previous swing high, which may take months to hit if the market does go my way. Here’s what I am doing:
Long NZD/CAD at market (.8785), max stop at .8485, max profit target at .9600
I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 2.71:1. I also get positive carry to pad my profits and help reduce my risk over time.
I do have one concern that with volatility expanding, my stop won’t be wide enough to weather a storm, but if I do get stopped out I won’t be afraid to re-enter long if the story is still valid to do so. I’ll also look to scale into a bigger position and trail my stop if the market does go my way to maximize my profit.
Of course, anything can happen in the forex markets–especially with a long-term setup like this–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!