CitiFX trade idea stopped out...
Last Monday, Adam posted a trade from CitiFX to sell NZDCAD.
Reasons cited:
- Expected oil to continue higher strengthening the CAD
- A more optimistic BOC
- Valuation of NZD too high on a terms of trade basis.
On Thursday,I outlined an update of the trade from my technical perspective (CLICK HERE). At the time the price was below the 200 day MA (green line in the chart above) and the 100 hour MA (blue line) Both key MA were close to each other. Being below was more bearish. Trade was looking favorable.
BUT....
I questioned the risk level given the decline. Specifically, for me, the move away from those two moving averages allowed for a reevaluation of the risk. Note, I am not questioning the reward but only the risk.
Why? Because risk to our trading capital should be job #1.
How do you evaluate risk?
By the price action and tools applied to the price action.
So on Thursday I commented:
"Given the 100 hour MA and 200 day MA at nearly the same level and the price making a break lower, I would now expect that should the price move above those MA levels, that traders might give up on the move lower. So for me, my risk would not be way up at 0.8950 anymore. It just does not make sense. Those MAs (100 hour MA and 200 day MA) are the close risk now. "
In other words, if the price action shows buyers willing to take the price above the MA's, it would be more bullish. Out of trade. Look for the next one.
What happened?
The price of the NZDCAD rallied on Friday. The price moved above the 100 hour MA and the 200 day MA at the 0.8850-53 area (right around the entry level) and shot higher. The price peaked at 0.8919 on Friday.
Although the price came back down and closed just above the 200 day MA and the 100 hour MA, I really did not care. The price action was not convincing to the downside. The technical picture was not bearish anymore. There was weekend risk from Doha anyway. The trade becomes more of a gamble, not a trade.
So, there is no reason to fight "the market". I have never been able to fight and win against "the market". I have been able to join forces with the market and win many times. The bias was if anything more bullish not bearish on Friday.
On Monday -after the Doha failure to come to any agreement - oil prices initially tumbled lower and one of the fundamental pillars for the trade was under attack (higher oil prices). That led to a spike higher in the NZDCAD which triggered the CitiFX stop at 0.8950. Their trade idea lost 100 pips.
Now they may have closed the trade earlier when Poloz was not as positive as they thought or even when oil prices came down on Friday last week. I don't know. However, for me, a trade is not dictated by what I think, but what the market is telling me from the price action and tools applied to that price action. It is not 100% but it keeps me from getting too bloody and when "the market" trend the way you expect, you have the potential to benefit greatly.
The CitiFX trade had all the right fundamental intentions, but they did not pan out. The story line changed - or was not what was expected. Since they had no technical levels to lean against, they were forced to watch as the price rallied strongly and stopped their trade out. It just did not have to be that way....
