Sentiment changed quickly on CAD/CHF since the end of August, enough to burst through resistance and trigger my max stop. Here’s a quick review.
CAD/CHF Fibonacci Resistance?
At the end of August, I spotted a potential pullback in the CAD/CHF downtrend and thought it would be an opportunity to play the dominating theme of ‘global recession fears’ and a recent string of weak economic updates from Canada. So, I scaled into a short position at the Fib retracement area for an average price of 0.7386 with a max risk of 0.50% if my stop at 0.7480 was triggered.
Unfortunately for me, the the Fib area didn’t hold for too long as global risk sentiment shifted (mainly on positive developments in the U.S.-China trade story), and on a positive shift on the Canadian as economic data started to flow positive in the past few weeks (GDP up 0.9% q/q vs. 0.1% q/q previous, Ivey PMI shows faster economic expansion in August, employment increased by 81,000 in August). With those factors combined, CAD/CHF rallied on both global-risk on sentiment and positive Loonie sentiment to trigger my stop loss at 0.7480 last Friday:
Total: -94 pips avg. / -0.50% loss on 0.50% original risk
Looking back, as the U.S.-China trade story shifted towards positive I probably could have lightened up my risk or close the trade altogether, but given how that could have quickly reversed off of surprise news, I kept the position and just let the trade run its course. I don’t that was a bad decision because if I started flipping my bias with every tweet from the U.S. President, I’ll likely go crazy flipping my bias every other day. Probably the best I could have done differently is on the second break of the 61% Fib, I could have closed to save a few pips, but at that point, the R:R of leaving the trade on far outweighs taking it off.
So, no luck this time as the market completely shifted from the environment that dominated at the time of the idea, but on the bright side, it turned out to be a good move to limit my risk to only 0.50%. Going forward, the Canadian economy is a top performer relative to the other majors, so it’s not likely I’ll be shorting it again any time soon. But I will look for long CHF opportunities against some of the weaker economies if global risk sentiment shifts negative once again. Stay tuned!
Well, that’s it for now. What do you think of how this idea on CAD/CHF played out? Would love to hear your thoughts so please don’t hesitate to share in the comments section below!
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