The last few days have produced some bigger movements, and whether swing trading or day trading I always prefer to trade in an environment where the price is moving strongly. When price can sustain its direction, it is much easier to make money than when the price is barely moving and grinding back and forth.
Here is a longer-term trade (by that I mean several hours to a week) I recently took in the USDCAD, as well as another trade I am waiting to get into, along with the rationale for the trades.
USDCAD Trades and Outlook
The USDCAD was moving very well through much of March and early April, and then it ground to halt. Mid-April saw the price chopping mostly sideways, and I didn’t want to trade in that. During that sideways chop the price was making slightly higher highs and higher lows. Based on the big decline from late March and early April, I was waiting for a short position.
Between April 22 and April 28 we start to see a shift. The price starts making slightly lower highs, creating a nice rounded top. On the third lower high on the evening of April 28 I took a short position because the sellers were creeping in (based on the lower highs) and the price was getting squeezed against a series of lows which held for several days. If the level broke, the price was likely to tumble. Well the next day it broke, and the price tumbled. I held the trade and then got out on the consolidation when the price failed to break lower for a third time.
USDCAD Hourly chart
I am now waiting for a second trade. The price is currently rising is small channel, so my hope is to pick up another short near the old breakout point, likely just below 1.10. The target for the trade is near 1.09 and the stop is near 1.1050 but the stop will be reduced to just above a recent high once in the trade (if it pulls back).
Here’s anther scenario: If the price breaks this consolidation channel, I will let it fall and then look to try to sell short on any sort of pullback to the lower consolidation channel line. Target is still down near 1.09 and the stop will be just inside the consolidation channel above a recent high–whatever price that may be at the time of the trade. At the time of the trade the setup will need to offer me at least a 1.5 or 2 to 1 reward to risk ratio ($1.5 to $2 expected profit per every $1 I trade). If it doesn’t then I will opt to skip the trade.
So no matter what happens, I think there are some good setups for short positions. The ideal one is a pullback to near the 1.10.
It is too early to think about taking a long position on this time frame. If we look at the 4-hour chart, the broader trend is clearly down. While the price has rallied quite a bit off the April 9 low, this still looks like a downtrend to me.
USDCAD-4 Hour Chart
These trades align with concepts I have discussed in other articles. One of the main ones is always looking at the market from a broader perspective. This could mean zooming your charts out to see more data or using a two-timeframe approach to trading. Because of the broader perspective I know I want to be looking for short positions still.
No matter what time frame you trade on, the next concept is patience. While I knew I wanted to get short for that first trade, I had to wait and wait until everything came together and the price was edging down. By waiting by the time you enter the trade the price is ready to go, and you shouldn’t have to wait long to be in the money.
The first trade produced a nice profit, and second one may, or may not. We don’t know; all we can do is trade according to our system and trust it.
The core element of my market approach is to look at a longer-term term to determine in which direction I want to trade. Then I wait for a move in that direction, then wait for a pullback, and then if everything still looks right, enter the trade when the price starts moving in the trending direction again.