Thursday, May 21, 2009

USDCAD - Look out below!

I've entered a short position in USDCAD. Why? Why not. The pair is at a major support level, a daily support level. I entered a few days ago, so I'm in profit and waiting to see what happens, and the best part is that I'm giving the market lots of room to move around, waiting for the decline.

Here are my previous thoughts on this pair, and where it would go
Notice on March 9, 2009 how the pair did penetrate the 1.3000 level and faked out breakout traders. Didn't I mention using a tight stop in an earlier post? I hope you didn't get caught on that one.
As I stated in an earlier post, I think the run up was due to the need for USD. Hedge funds had big clients who wanted out of the market, they could see the domino's falling after October of last year. To cash these guys out, the holding needed to be liquidated to some extent, including holding on non-USA markets. When they liquidate those holdings, the currency must be changed back to USD, so that drives up the price. There are clearly more forces at work than this, but I like the simple approach, all I need is in the price. And as I also stated before, understanding why something is happening is the downfall of many traders. You will know why many months later.

Credit Crisis and PUT option
If you do some creative searching on Google, you will find that there were those that shorted the market using PUT options before the credit crisis was public. Click on the link above to get started. So here is what I'm saying, you might have noticed this happening, and allot of traders did. How many acted? Notice the forum article, the writer is trying to figure out why? Who gives a rats ass why. Keep that in the back of your mind, like a dart in your back pocket, take it out when you need it. If you saw the market take a shit kicking like it did on November 8, 2008, you might have thought to wait a few days for a bounce, and pick up some PUTs. Or, you might have not because you wanted to know WHY? and didn't make a killing like the traders who sunk billions into PUTs. So, why ask why?

Looking at the charts below, notice on September 8, 2008 the USDCAD started to rally. Is this the impact of liquidating large amount of holdings? The pair tops out on October 28, 2008. So what do you think about that? At the time you would be asking yourself, why is it running like that? Stop asking, and make the trade. Even the hammerheads on CNN, BNN, and all the rest don't know what is going on. If they did, it would news.

Back to the USDCAD. It doesn't matter why it went up so fast. All I know is that the chart is telling me to short it. Be careful, manage risk, keep your capitol for another day if you are wrong. But if it cracks this support line, where is the next support? Keep looking down.

The other possibility of course is that it bounces a little and stays in this channel for the next 80 years. I'm playing the decline.

Here are the charts. Notice the daily support level at 1.1463 TO 1.1350.

Above = Daily chart
Below = Hourly chart

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