Lots of movement in AUD/CAD since entering short at market last week, so it’s time to adjust the plan to hopefully maximize my potential gains if downtrend momentum picks up again.
Trade Adjustment: Downtrend Momentum In AUD/CAD
After shorting AUD/CAD at market (.9487) last week to play my fundamental bias with the downtrend in price, the pair’s momentum continued to take it lower to around .9420 before the bears ran out of steam. This was likely a reaction to the Chinese yuan rallying hard after Vice Minister of Commerce Wang Shouwen announced another meeting with U.S. representatives, prompting broad risk-on sentiment that the Aussie is usually a beneficiary of.
This week, we saw enough bullish follow through in AUD/CAD at the beginning of the week for the market to hit my second short order at .9600, putting me in my full short position at an average price of .9546.
But it looks like sentiment has turned sour on the pair once again, likely on a combination of another fresh round of U.S.-China tariffs and political turmoil in Australia as Prime Minister Turnbull loses more ministers from his Cabinet.
With the driving themes currently in favor of a bearish Aussie in the short to medium term, I think there’s enough juice to go for a bigger potential reward.
Since the market did make a fresh swing low around .9420, I’m looking for a break and sustained trade below it to potentially add to this short position. Of course, I’ll roll my stop lower to make sure my risk is limited, and I’ll adjust my max profit target to the 2013 and 2015 major support level where the bulls jump in to revers the pair higher. Here’s what I’m doing:
- If market breaks below .9400, then adding another short position at .9400.
- Rolling down max stop from .9700 to .9600
- Max target adjusted to from .9350 to .9150
With these adjustments, my average price goes from .9546 to .9499. My max risk is then 0.48% and my max profit jumps to roughly 1.67% for a potential 3.35:1 reward-to-risk ratio.
Again, I’ll make these adjustments if the fundamentals and driving themes continue to favor AUD/CAD bears, which means I’ll be watching developments in the U.S.-China trade war story, movements in the price of oil, NAFTA negotiation developments, and of course, the latest economic data coming up for both Australia and Canada.
If something changes on those fronts that I think will bring in the bulls, I’ll be quick to adjust once again, likely close a portion or all of the trade.
Stay tuned and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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