Shorting the Swing Lower in EUR/CAD – Trade Closed

Trade Closed: 2013-05-03 04:25 ET

Good morning forex friends! Well, it looks like once again I had a good idea that went my way, but going for big pips kept me from closing with a smaller amount of sure pips on EUR/CAD. Here’s how it all played out.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

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In the 60 minute chart above, we can see that I entered short half a position at 1.3250 and after the ECB rate cut and Draghi’s comment that the idea of negative deposit rates is open to the ECB, the pair fell all the way down to 1.3150. In my mind, I felt that these two changes would lead to a bigger euro sell off throughout the next couple of sessions, so I decided to hold and add to my position at 1.3150 and move my stop to 1.3250; this ensured an increase in my max gain while maintaining the same risk as before. Unfortunately, it looks like that was the bottom for the session.

Late in the US session, the new head of the Bank of Canada was chose to be Stephen Poloz, the current chief executive officer of Export Development Canada (a government trade financing agency). This was a surprise to the markets and very bearish for the Canadian Dollar as traders feel he would adopt an easier monetary policy or stop the rate hike rhetoric. And ahead of the European trading session, ECB member Nowotny was quoted as saying the markets have overstated the negative deposit rate discussion yesterday. This caused a broad based pop in the euro, especially in EUR/CAD.

Overall, these unforeseen events were both not-so-good for my EUR/CAD short position and I was stopped out at my original entry price.

Total position: -100 pips/ -0.50% loss

So, after a little bit of reflection, the main question to ask is, “Should I have closed when the market hit 1.3150?” Well at the time, everything was looking good for a further move down.
The BOC announcement and ECB member comments were unforeseen and in-factorable to my analysis at the time. But what I think I could have done differently was to close right after the new BOC news. It’s not a big event, but it’s a game changer on how the market views the Loonie and I should have recognized that.

What also kept me in was the personal need for me to get out of my comfort zone. I’ve been one to close out trades for 1:1 returns, only to miss out on bigger moves that would have resulted in as high as 10:1 returns. As nice as it was to see a 1:1 in paper profits, the information at the time still told me that a bigger return is possible and that I should hold on.

I ended up wrong in the end, but in the moment, it was the right decision that would hopefully lead to improvement and better trading results down the road.

Overall, I would say I’m not feeling down about this trade because I think I did the right things for the most part: good analysis, good stop, and entry could have been better but it wasn’t terrible. It was a good trade that didn’t go my way, but with a very small 0.50% loss, I can easily live with it.

Well, that’s it for me. I’m going to observe the US NFP event later and then head off into the weekend for a bit of relaxation and preparation for next week. I’m glad to see some have caught some pips with this post and I hope everyone enjoys the weekend.

Thanks and see ya next week!

Trade Idea: 2013-05-01 00:18 ET

Sorry Cyclopip, but I had to take this setup on a currency cross that is both fundamentally and technically sound in my book. Will we eventually see 1.3000 in EUR/CAD?

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Technically, I think this is a good short setup as the pair has been grinding lower since finding resistance at 1.3500. Since topping out, it has created a pattern of consolidation then break lower, in which it is currently in around the 1.3250 area. If it does break to the downside, there is nothing in it’s way to slow a move down technically until 1.3000–a major psychological level.

I think the probability of the pair moving lower is pretty strong with recent better-than-expected Canadian data showing the resilience of their economy; yesterday, monthly GDP reported a read of 0.3% vs 0.2% expectations, showing growth in the economy and making the Loonie more attractive.

On the other side of the pond, euro zone data continues to come in weak and inflation doesn’t seem to be a problem with yesterday’s CPI Flash Estimate coming in at 1.2% vs 1.6% expectations. All put together, along with the ECB’s openess to a rate adjustment commented at the last meeting, speculation for a rate cut from the ECB this week has increased, but I’m not one to say it’ll be a sure thing. But the odds are more likely for a rate cut or some sort of quantitative easing program rather than a rate hike.

So, I’m short biased on EUR/CAD and have already entered at market, but of course, Draghi’s commentary after the event is always an X-factor, which is why I’m keeping my stop tight, above the current consolidation area. My target is that 1.3000 level, which if there is a rate cut, should be easily reached in no time. Here’s my entry/exit plan:

Short half position EUR/CAD at market (1.3250), stop at 1.3350, profit target at 1.3000

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

For this trade, I’m only risking 0.50% of my account, and with this trade structure, my potential reward-to-risk is 2.5:1. Actually, I look to scale in another position at 1.3150 if it does break to the downside, and especially if the ECB does cut rates. 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.

Thanks for checking out my blog…good luck and good trading!

  • Bijoymj

    Most times, our trades coincides and moves with same bias. Though, entry, TP, SL levels are different, directional bias and reasoning stands in the same path. In this case, I am already short from 1.3284 with TP @ 1.3104 and SL @ 1.3404. Reasoning is clear in the chart. May the pips be with us.

  • liliku

    well done. For bijoyme have a nice pips weekend

  • liliku

    don,t close too early bijoymj

  • liliku

    where i can find clear explanation on average true range

  • liliku

    how come sir ? I got 43 pips by sell stop at 1.3270. now the pips still adding.I make sl 200