Short USD/CAD: Breakout or Fakeout? – Faked Out!

Trade Closed: 2011-06-02 2:30

Looks like the only thing I got from my “multiple time frame analysis” is that I got to see my trade lose in so many time frames! Boo!

USD/CAD Above .9750

Yesterday we saw risk aversion settle over markets as economic data from both the U.K. and the U.S. came in so much worse than expected. Goodness, I heard that the ADP non-farm employment report only revealed an increase of 38,000 in April! That’s just like the employee count of a single corporation…or half of the capacity of Disneyland!

In any case, the strong move caused by risk aversion canceled out the BOC’s hawkishness from early this week and pushed USD/CAD all the way to my stop loss. As a result, my account slipped by a full 1% and I lost an average of 95 pips. Nooooo!!! ūüôĀ

How could I have played this trade better? Are you seeing patterns in my trading that I’m not seeing? Heck, I even tried to stay away from AUD/USD this week just to see if I can repeat my winning USD/CAD trade!

So will you help me? If you have any ideas on how to improve my trading, you can drop a thought or two on the comment box below, or you can talk to me through my @Happy_pip Twitter and Facebook accounts.

Thanks a lot, guys!

Happy time

Trade Idea: 2011-06-01 2:41

I’ll be honest, guys. I took a peek at the results of Forex Ninja’s Trade of the Week contest and I used salt-n-pipper’s winning USD/CAD short trade idea for this week.

Even better, I’ll give it a slight twist by making use of multiple time frame analysis. You see, as I reviewed my past comdoll trades, I noticed that I sometimes forget to look at longer-term time frames. In other cases, I fail to zoom in to the short-term ones to look for signs that I should jump ship. Well, I’ve learned my lesson. This time around I’m looking at the daily chart AND the one-hour chart!

USD/CAD Daily Chart

As salt-n-pipper pointed out in her daily chart analysis, USD/CAD was testing not only a potential resistance at the falling trendline, but it was also consolidating around the major .9800 handle and a 61.8% Fibonacci retracement.

After seeing that the 61.8% Fib held on the daily time frame, I decided to take a look at the 1-hour chart. I saw a breakdown from the consolidation above the .9750 minor psychological level. That’s gotta be a sign that the Loonie bulls are about to charge big time, right?

USD/CAD 1-hour Chart

As tempting as those signals were, I wasn’t ready to dive in just yet. I wanted to wait for a little more confirmation since the pair stalled around the previous week low, and the BOC was just about to announce its interest rate decision. Good thing that turned out in my trade’s favor!

In its statement yesterday, the BOC sounded surprisingly hawkish, saying that it will “eventually” have to raise its interest rates. What’s more, the S&P home prices in the U.S., Chicago PMI, and the CB consumer confidence all surprisingly printed to the downside. I still gotta be careful though, as these reports might come back to haunt the high-yielding Loonie when risk aversion sets in!

For this trade, I figured that the safest way to avoid a fakeout would be to set my sell stop order right below the .9700 major psychological handle.

I was able to jump in the drop right at .9670 with 0.5% risk but I’m still hoping to add another 0.5% if the pair pulls back to .9700. After all, that level is in line with this week’s bottom ATR and the 38.2% Fib. Plus, stochastic seems to be climbing, which means that USD/CAD could retrace before resuming its dive.

So what you think about this trade idea of mine?

Short USD/CAD at .9670, stop loss at .9780, profit target at .9450. Add another short position at .9700, stop loss at .9780, profit target at .9450.

I risked 0.5% on each entry and I’m hoping for a 2.5% gain if both my entries get triggered and USD/CAD drops all the way down to its recent lows at .9450. In case my pending sell order at .9700 doesn’t get hit, I’ll still be in for a 1% win if USD/CAD falls to .9450.

Anybody in a USD/CAD trade too? Share me your thoughts! If you’re too shy to post it here, you can always contact me in my @Happy_pip Twitter and Facebook pages!

Happy time

  • aniroodh

    great trade set up. i am following.

    • happypip

      Great to hear someone else is on the boat with me, ANIROODH! ūüôā

      Hope you get a better price though. I’m currently down by a few pips. Boo!

  • Mattspips

    I’m with ya, I think the USD/CAD was just extending its channel a little bit here and we are ready to head back down, hopefully to the 0.95 area at least. ¬†I’m currently waiting for more confirmation but will jump in on this as soon as I see everything line up for me.¬†

    • happypip

      I hope you’re right about USD/CAD extending its channel, Mattspips! Since Canada’s exposure to the U.S. economy is making investors a bit cautious on buying the Loonie, I’m hoping that summer oil prices will soon do the trick. ;D

  • bota

    Monday I’ve bagged 57 pips on this trade, and closed it on Tuesday, right on time before the price started that consolidation. I usually trade on one hour chart, but this time I’m on daily.I am waiting for the one hour and 4 hour chart to be out from the oversold area, because it seems to me that the price entered in a consolidation that will last at least couple of days… I’m am waiting for your opinion. Thanks

    • happypip

      Hey bota!

      I’m also in two minds as to where the pair would go for the rest of the week! ūüôĀ

      For now though it looks like the pair is still staying below the falling trendline and resisting the .9750 handle. Let’s both watch what happens next!

      *crosses fingers*

      • bota

        Looks like the price popped one of those magic pills like that guy in Limitless, and climbed like there was no tomorrow. I got stopped twice: Short at 0.9735 and Short at 0.9774. Stochastic was overbought. Looking back I made those mistakes that costed me before… Jump in too early… I think you got stopped to… Any trading ideas now?:))

  • Firstpost

    Went long CDM on 5-26-11 12:54 am¬†pt at 102.36.¬†¬†I figured CAD, being a comdoll like the AUD, would catch up with the strength in the¬†AUD.¬† Took about 50 pips of heat, possibly related to relatively lethargic crude oil.¬†¬†My original plan was to hold for contract highs.¬† However, decided to¬†exit trade on 6-1-11 05:18 am at 103.16.¬† I became concerned¬†about the disappointing US¬†economic report and the increasing weakness in the S&P futures.¬† I’m not sure how the weakening US Economy will effect USD versus CAD.

    • happypip

      @09292e0a2815b9c783c16e87482a0cfa:disqus¬†What’s CDM? Are you referring to the mining corporation? I’m only asking because I should probably have a look at that myself ūüôā
      For now, since risk seems to be off, weak U.S. data could have a negative impact on CAD. Plus, the Canadian economy depends largely on the U.S. economy so weaknesses in the latter could drag the Loonie down as well. Just my two cents. 

      • Firstpost

        Hi HappyPip,  CDM is the symbol for June Canadian Dollar futures on the Chicago Mercantile Exchange.  Thanks for your input.  It makes sense.  When US financial crisis was in full swing, CAD was weak.  However, still not ready to short the Canadian.  Its hard to see the current US monetary policy being a magnet for capital inflows.

        • happypip

          Ohhhh. I see. Thanks for the info! I agree, I’m still hesitant to buy the U.S. dollar myself because there’s still talk of QE3. Doesn’t help that U.S. has been releasing poor figures lately.¬†

  • Firstfx

    Best bet on USDCAD now is to trade the .9820 resistance area until it breaks out of it.  So Short at aboout .9820 to .9780 and take profit at .9710 or for now maybe even a bit less take profit to be safe.  Stop at about .9850.  There is an uptrend line showing if you connect the two May 2011 lows and June low  so that is why I say for now take profit at .9710 or maybe even a bit less profit.

    • happypip

      That setup looks pretty cool¬†@a8d4ecb0c778f7bfe9b66a57a8990d35:disqus¬†! I’ll do a bit of reading on the upcoming NFP report first before deciding whether I’ll take that trade or not. Good luck on your trade!

  • Mattspips

    I still think USD/CAD is going to head south, its testing the upper trendline of that channel still, I would have to see a solid break above that before I consider it to be invalid, I’m looking at a daily chart FYI.

    • happypip

      Yeah that longer-term falling trend line on the daily chart seems to be holding up. I wonder whether the NFP will result in an upward breakout or if it’ll push USD/CAD back down. Do you have a short USD/CAD trade open¬†@2505237e8d46b9bcfb2643a6adbfa695:disqus¬†?

      • Mattspips

        I’m not yet, but if the NFP is worse than expected it should drive the pair down and give me all the signals I need to go short. ¬†Also the recent test of the 0.9800 on the daily RSI [14] is showing some divergence. ¬†Its all looking good but I just have to wait for all my indicators first. ¬†¬†

        • bota

          What indicators do you use?

      • Mattspips

        Decided to go short on this today, after seeing the NFP and the wicked rejection of 0.9850 and the candle forming on the daily thats all I need to give this trade a whirl.¬† Hopefully you get some confirmation and can go in too and we can all make some pips!¬† I’m shooting for 0.9500 as my TP. ¬†

  • bota

    I would like to know more about CAD and what inflences it’s movements (against the dollar), where can I find that kind of information? And I also have this dilemma about USD/CHF, it is making new lows and stochastic is on oversold from 05.29.2011. What’s happening there and is anybody trading this pair, because it seems to me that the market hit rock bottom and has to move up… I’m new to this game (a month and 2 days=) on live account, managed to close the 1st month with on profit 10%, and thats a great victory for me:D). Anyway, I’m from Romania, so excuse my english, and this long post:)¬†

    • happypip

      Hey¬†@6cf2887ee9c55e0904a510f98af13971:disqus¬†, you might wanna read the School of Pipsology lesson on crude oil and how it’s correlated to the Canadian Dollar. I don’t watch USD/CHF so much since I’m trying to focus on the comdolls, but I think it’s been dropping because of weak US data and euro zone debt problems.¬†

      Congratulations on your 10% profit! That’s really impressive and I hope you keep it up. See you around!

  • Jess Laventall

    I guess risk aversion got the best of it. Yesterday US equities took a bath and in almost all USD pairs USD performed better. There were some pips to be had by going bullish on USD. 

    Maybe tighter stops on trade setups like these? I know it might knock you out of the game with small losses more often, but when doom and gloom news hits, sometimes its best to watch and see where things are going intraday. I think your trade may make sense after NFP comes out. Maybe then the Loonie bulls will be out in full force.

    Good luck and thanks for sharing your ideas and experiences. It’s important to share both the good times and bad. We’re all rootin’ for ya.

    • happypip

      Thanks¬†@google-6d62f65f9781955652d0c02052a27188:disqus¬†! I could definitely use your support and feedback especially when I’m getting clobbered with my trades. I’ll see if I can find a nice setup to trade for the NFP. What about you? Which pairs are you looking at today?

      • Jess Laventall

        Me? Well its pretty late here on the US West Coast, and I aint gettin up at 5:30 am tomorrow to watch NFP as it happens. Being a beginner at all of this, I’m probably going to sit and watch most of the action from the sidelines and possibly catch a trade later on if I see a trend emerge. ¬†

        It would seem to me that doom and gloom in the US will not bode well for CAD (in the very short run), though I’m more interested in seeing what moves NZD and AUD tomorrow. I suspect these are more sensitive to reports out of China than the US, but I guess we’ll see in a few hours.


  • Steve44MCaUSAFX

    On a much much lighter side Happy…
    Where do you get those little Cute Pics in your charts from.
    What Charting System are you using?

    • happypip

      Good ole MS Word clipart! I’m glad you find them cute, haha. I normally watch the charts on my MT4 platform. See ya around¬†@27cf6678c739f959db9e36eaa303a49e:disqus¬†ūüôā¬†