Both the Aussie and Loonie flipped sentiment quickly last week, taking this winner back into loser territory. With no prospects of sentiment flipping back to negative for AUD/CAD, I decided to close my trade to avoid the max loss. Here’s a quick review.
AUD/CAD Downside Breakout?
Earlier in August, I decided to short AUD/CAD to play my short-term fundamentally bearish bias on the Australian dollar against the Loonie, which saw benefits from oil strength and a rebounding global economy.
I scaled into a short position at below a broken rising trendline (at 0.9453 & 0.9545 with 1.00% max risk) in hopes that both the fundamental and technical arguments would draw in more traders.
Since then, we were able to see AUD/CAD bears push the pair lower for a profit in this idea, but solid support formed around the 0.9450 minor psychological level.
Eventually, the bulls took back control, likely on broad risk sentiment lifting the Aussie further than the Loonie (both risk-on currencies), and possibly on weak economic updates from Canada, speculation of more stimulative action from the BOC, and the fading oil rally.
With risk sentiment continuing to lean positive to support the Aussie, and with Canadian jobs likely to be below the +400K jobs added in July, I thought it was best to just close the trade out manually (at 0.9632) to avoid the max loss.
Total: -109 pips avg. / -0.79% loss on 1.00% max risk
Looking back, I probably should have closed the trade for a profit after seller’s second attempt to break the 0.9450 support area failed, but the Aussie was under pressure at the time as risk sentiment flipped negative, and the Loonie was being support higher by rising oil prices.
It wasn’t until the end of the following week that the Loonie really began to fall apart on weak Canadian data and the Aussie flipped as well, at which point I probably could have closed for just a small loss.
So, I think that was my mistake on this trade that I didn’t act sooner after sentiment changed for both currencies, especially considering that I didn’t intend to hold this trade for very long.
Hopefully, I can apply these lessons to future trades, as well as my current winning short position in USD/JPY. If sentiment shifts on USD this month, I’ll be sure to cut that trade off much sooner than this AUD/CAD trade.
Stay tuned for that, 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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