Although it is technically not an indicator, we would like to use today’s report as an opportunity to discuss our “time stop methodology” and the importance of being able to exit trades if they are not moving in the desired direction.
Aud/Cad: Yesterday, we recommended and established a short position in Aud/Cad at 0.8715 with the cross rate very overbought and having just exceeded the previous 2009 highs to fresh yearly highs. However, with the market failing to reverse course, the cross continued to rally to a high of 0.8795 before finally pulling back into the close. Our recommendation was to exit the position on the New York close (5pm EDT) should the market not trade back below 0.8665. Indeed, the market never traded back below 0.8665 and we happily exited the trade for a small profit on the close. The concept of a time stop is to exit a position regardless of where it is trading should the market not do what we want it to by a certain time. As seen in the above example, today’s price action has not been favorable and we are glad to be out of the trade.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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