OK, I know I said I wasn’t trading but I can’t help but peek at the markets, especially as I update my charts in preparation for the New Year.
Yesterday, I saw that USDCAD had dropped, taking out my final long at +10 pips. This isn’t unexpected as thin December markets can cause extreme moves. The last time I wrote about this pair (long ago on December 18), its downtrend line from August had repelled it a fifth time. It then proceeded to sink to its current level.
Will it continue to drop? Unanswerable, that, but more to the point, is it worth risking a buy? I’m always worrying about the downside so the real question is where I could place a stop. Unfortunately, there’s not a lot of support until you get to the 1.0272/66 October 19 and 20 lows. After that, of course, is the wretched low of 1.0208. At 1.0367, today’s low, one would have to be willing to risk anywhere from 100 to 160 pips (actually a bit more as I’m not going to put the stop right on the prior low.) That’s not awful, depending on one’s point of view but it might be a bit much for some traders.
Another way of finding a stop number is to look at the uptrend line from the 2007 low. It’s coming in at 1.0347. This isn’t too bad. So yes, I can risk a buy using just below that trend line as my stop point.
Another thing to note on the daily chart is how the pair is coiling inside a symmetrical triangle. After three months, I’d expect that this would resolve soon, either upwards or downwards. Something to look forward to, for sure.
Here’s the daily chart showing the move from November 2007:
© 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.