Loonie ... the infamous USD/CAD

Quote from gspaulsson:

Why i don't like stops and try to find other ways to manage risk: stops are a great way to make sure you're always buying at the top and selling at the bottom.

Violating my own principles, I got nervous about my GBPCAD position (I was short at 2.1511) and put in a stop at 1530 before I went to bed. Naturally, it hit my stop and then plummeted to the 1460s this morning. So thanks to my stop, I was -19 instead of +50. The stop was at the top end of a 3-day 200-pip upward move that I was riding out, so overall my 150-pip first-day profit turned into a 50-pip loss.

It shouldn't be called a "stop loss", it should be called an "ensure loss". Much better to manage risk by spreading the bets around, hedging (having money on both sides of your base currency), and rebalancing from time to time. You set reasonable targets and wait for the fish to swim into the net. If one small position goes a few hundred pips offside, it doesn't matter much. If you have made sane entries and set attainable targets, 99% of your positions should pay off sooner or later, usually sooner. I am returning to that style of trading which has worked great for me, and forgetting about going for the big profits on the 1300-pip long-term moves.
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I too have learned NOT to use STOP LOSS on my trades. I swear, dealers look at those stops, and find some way to trigger them off. And it seems on OANDA there is incredible slippage that can occur at those STOP LOSS prices so that you will even loose more. It's like give the dealer permission to make you loose on those trades..

Better to use money management. Spread lots of small trades around. Let your winning trades offset your loosing ones. Take your profits when you want to change your possitions, and just enjoy the carry trade interest. Yeah, some times it takes a long time for my trades to complete. Take for example the EUR/CAD pair. I've been holding onto a bunch of what seems to be loosing trades for months and months.

By boy oh boy, I"m pulling in the proffits now.

I always liken FOREX trading to the tide of the OCEAN. Try to determine when the tide is going to change direction, and be prepared to profit from low and high tides. Sometimes due to seasonal changes, the tide comes in higher, and goes out lower. But it is constantly going back in forth, which gives everyone opportunity to make money.
 
Yes, USDCAD is clearly still trending down. In the meantime, GBPUSD is also at the moment near the top of a downward channel. That's why I shorted the GBPCAD cross.

I don't like to play trends alone, however: I want fundamentals backing me up. The USDCAD downtrend is bound to be temporary, but who knows how far it will go - my guess is that it will continue until the effects show up in the Canadian economic data. It seems Dodge may raise rates to try to hold the economy back: if he does, expect more enthusiasm for the loonie in the short run and a rebound maybe in July.

The GBP downtrend I'm not so sure about. BofE recently raised rates by .25%, but it made no difference to GBP - in fact it went down against all the other majors. I was theorizing that it was market uncertainty over Blair's resignation - both Blair and Brown are now lame ducks, Brown is expected to be more left-wing than Blair (never popular with financial markets) and nobody knows who he'll appoint as Chancellor or what the new policy will be. But the downward channel was established a while back. Of course everybody knew that Blair was going to step down and Brown was going to replace him, so all May 10 did was confirm it and set a time-frame. Maybe the expectations were enough to start the downtrend. Also maybe the market had overreacted to expectations of a series of rate increases and the downtrend is just a correction. GBPUSD zoomed to the top of its channel yesterday: will it break through and resume the march to 2.02, as some pundits predict? Or will it keep backing off until the political situation clarifies? If it does break through, will the loonie stay strong enough to fend it off? Stay tuned to this channel, folks.

Aside from the fact that I lost money by misplaying it, I'm now thinking that GBPCAD is a bit of a crapshoot. I still have a bit riding on it, but not the whole bundle.

I shorted it this morning at 1463, which naturally caused it immediately to zoom up 50 pips. Sometimes I think the market is out to get me. Patience, however, patience ....
 
BTW, EURCAD is also on a very nice downtrend, and without the signs of strength that GBPCAD is showing. I may switch over, but have to understand the fundamentals first.

As to dropping a bundle by playing without stops, I don't say I never sell at a loss, just that I'd rather make that decision myself than leave it to a computer. Also the key to the strategy is to commit small amounts, so that when things go the wrong way it's at $2.50 a pip, not $50.
 
Quote from gspaulsson:

Also the key to the strategy is to commit small amounts, so that when things go the wrong way it's at $2.50 a pip, not $50.
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$2.50 a pip! Call me crazy, but I prefer infrequent, high probability trades with sizes from $100-$1000/pip. Go big or go back to work is my motto. :cool:
 
I think this pair is heading to 1.0896 in the short term. If this level resolves upward then onto River.

usdcad5-24-2007.PNG
 
OK, you're crazy. Not all of us play in your leagues: my trading capital is around $20k and I do it as a sideline. I may soon come into $300k or so and be able to play on a bigger scale. However, my trading method (when I remember to stick to it) brings me about $200 a day, enough to pay the rent and buy the groceries. If it scales up, $300k will give me $3k a day, enough for a comfortable living. I limit my leverage to 10:1 max, so I have around $200k in play, typically spread over 7-8 positions, $25k in each. I set targets 20-30 pips up, and hit about half of them on a typical day. 90% of my positions pay off within a week and 99% within 6 weeks (if I haven't shifted the capital to someplace more productive in the meantime).

My experience with big, long-term trades is that the ones that pay off, pay off, and the ones that go wrong wipe you out.
Remember that if you lose 50% of your capital on a trade, you need a 100% roi to make up for it.

Btw, for the oil bulls:
http://online.wsj.com/article/SB117823006862691392.html?mod=home_whats_news_asia
 
Quote from downrivertrader:

I think this pair is heading to 1.0896 in the short term. If this level resolves upward then onto River.

usdcad5-24-2007.PNG
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I am shorting if it breaks 1.08 level....the second leg of the dow turn is not done yet.....but what do I know right....

Technically speaking if this is going to be the bottom more violent selling should occur at first then it will turn around until then it all down trend from here baby...and I only play trends. :)
 
Here's my take on what I think and wish will happen within the next few weeks..

The US: With gas and stock prices sky rocketing. Inflation Concerns may make the Fed think about a rate increase.

The only problem with them increasing the rates in their minds, are those people who were dumb enough to buy more house than they can afford and are hurting to refinance their homes. Unfortunately, when rates increase, the value of their home will decrease, which causes the equity pinch. And I don't think the Fed want's to see a lot of foreclosures, for that will cause Mortgage Rates to increase dramatically.

Mean while, if the USD stays week, the rest of world says buy US Goods, take your vacation in Orlando and live it up. This will cause the stock market to even go up further. Also, US Stocks are REALLY cheep to all those who live North of us. We might see even more highs in the Dow.

So, get's hurt if the FED does nothing.? You and I have nice FIXED interest rates on our homes, and are being forced to pay large Sums of money at the SuperMarket. And EVERONE who is going to suffer from the eventual rate hikes will even suffer that much more as they continue to dig their own graves.

Who get's hurt if the FED raises rates? Those who were foolish with getting ARMs, and who have not saved their money for harder times, which were always bound to come.



On the flip side, look at Canada: Sure, right now they are buying cheep US Products, buying lots of US Stock, and are taking their vacations in the US. (If there smart, probably prepaying everything.) And at the same time, their lumber is more expensive to U.S Home Builders, along with all of their other products that they export to the US. So, hopefully for their own sakes, they are thinking about possibly lowering interest rates. Or at least they will talk about it.


What will this do to the USD/CAD pair?

I think we might have a repeat of last Summer coming on it's way.:D


To me, the question is not if their is going to be a dramatic reversal to the down trend, but more when.

And I think the issue of the when, is when the big boys believe that they have made enough money on the down trend, and belive it is time to sell their loonies and replace them with USD, so that they can even make more money.....
 
Zonetrooper, you're quite right, stops make you vulnerable to stop hunters. The technique is simple: say I have a billion Euros. I dump them on the market, pushing the price down and triggering stops, which pushes the price down further. Then I gradually buy my Euros back in blocks of 10 mil or so, riding the aftershocks. Only available to the big boys, of course.
 
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