USDCAD--on the move again?

Yesterday was uneventful for USDCAD but it's moving this morning. One of my original trades is still on, the one I placed at 1.0433. As of now, 5:40 AM EST it’s up 300 pips. To summarize, I’ve been going long this pair since October 15th when it dropped into the 1.01 range, a low I wrote that I liked very much. They have been profitable trades. Yesterday I added a second small position at 1.0647. This replaces the trade that hit its profit target at 1.0655 (219 pips). I just moved the stop to breakeven.

Let’s look at the overall situation here. It is in an overall downtrend. Let’s not forget, too, that the loonie is a commodity currency and commodity prices seem to be forever going up. Finally, there are those turning blue while holding their breath waiting for the USD to collapse in on itself. Oh yeah and the “let’s stop the USD as a reserve currency” crowd. Do I have to say their names? With all this is it still worth being long in this pair? Or should I grab my profits, close my longs, and run?

The answer is in the charts. On the daily chart momentum, as measured by RSI, is finally above the 50% level. The next important level in RSI is the 61% level (interesting it’s a fib number). In addition, the pair made it past a crucial barrier that I had calculated (this is the orange line on the chart). One can see the pair is attempting to push through resistance. Another thing that’s interesting on the daily chart is the V-shaped bottom the pair made. This might indicate an emotional reaction so I’m not thrilled with this—I’d have preferred to see a more rounded bottom which would tell me selling was drying up. But we take what we get. In the face of the very significant intermediate downtrend (that’s Dow Theory use of the term intermediate) this small upturn is insignificant so the buyer needs to be cautious. Here's the daily:

After a pause on the hourly chart, the pair has formed some bullish candles. What I don’t like is the divergence between RSI and price. But the bottom line for me is that I’m up 300 pips in one trade (as of 5:40AM EST) and the other is set at breakeven. So I’m staying in. Another minor resistance level is coming up at 1.0791 (60 pips away). If things look good then I may add another miniscule position. If not, I won’t. Here’s the hourly chart:

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.